Reading 40: Discounted Dividend Valuation-LOS f 习题精选 return

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Session 11: Equity Valuation: Industry and Company Analysis in a Global Context
Reading 40: Discounted Dividend Valuation

LOS f: Calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-to-earnings (P/E) related to PVGO, given no-growth earnings per share, earnings per share, the required rate of return, and the market price of the stock (or value of the stock).

 

 

 

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)?

A) $31.58.

B) $38.85.

C) $16.71.

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The PVGO is $31.58:

PVGO = $42 – ($1.25 / 0.12) = $31.58

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Obsidian Glass Company has current earnings of $2.22, a required return of 8%, and the present value of growth opportunities (PVGO) of $8.72. What is the current value of Obsidian’s shares?

A) $57.17.

B) $10.94.

C) $36.47.

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The current value is $36.47. V₀ = ($2.22 / 0.08) + $8.72 = $36.47

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Tri-coat Paints has a current market value of $41 per share with a earnings of $3.64. What is the present value of its growth opportunities (PVGO) if the required return is 9%?

A) $3.92.

B) $0.56.

C) $1.27.

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The PVGO is $0.56:

PVGO = $41 – ($3.64 / 0.09) = $0.56

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The required rate of return for an asset is often difficult to determine, but if we know the growth prospects and the current earnings of a firm we can determine the implied required rate of return from the:

A) dividend rate.

B) earnings retention rate.

C) market price.

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The required rate of return is implicit in the asset’s market price and can be determined with the present value of growth opportunities.