Question #82
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 31
Status: Unattempted
Question
Ambiance Company has a current market price of $42, a current dividend of $1.25 and a required rate of return of 12%. All earnings are paid out as dividends. What is the present value of Ambiance's growth opportunities (PVGO)?
Answer Choices:
A. $38.85
B. $31.58
C. $16.71
Explanation
The PVGO is $31.58:
PVGO = $42 – ($1.25 / 0.12) = $31.58