Reading 42: Discounted Dividend Valuation-LOS e 习题精选 related, present, leading, interpret, 2011

土豆妮

Session 11: Equity Valuation: Industry and Company Analysis in a Global Context
Reading 42: Discounted Dividend Valuation

LOS e: Calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-to-earnings ratio (P/E) related to PVGO.

 

 

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) $38.85.

B) $31.58.

C) $16.71.

---

 

The PVGO is $31.58:

PVGO = $42 – ($1.25 / 0.12) = $31.58

土豆妮

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) $36.47.

C) $10.94.

---

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

土豆妮

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) $0.56.

B) $3.92.

C) $1.27.

---

The PVGO is $0.56:

PVGO = $41 – ($3.64 / 0.09) = $0.56

土豆妮

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) market price.

C) earnings retention rate.

---

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

土豆妮

Xerxes, Inc. forecasts earnings to be permanently fixed at $4.00 per share. Current market price is $35 and required return is 10%. Assuming the shares are properly priced, the present value of growth opportunities is closest to:

A) +$3.50.

B) +$5.00.

C) -$5.00.

---

Share price = (no-growth earnings / required return) + PVGO
35 = (4 / 0.10) + PVGO
PVGO = -$5.00