How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share, has an expected dividend of $2.50, and a required return of 20 percent?
A)$0
B)$6.00
C)$8.00
D)$10.00 P = $4/.2 if all earnings paid as dividends

Question

Quizplus · Accepted Answer

PVGO (present value of growth opportunities) is the difference between a stock's price and its no-growth value, assuming all earnings are paid out as dividends. 
Thus, the formula for PVGO is:
PVGO = Price - (Earnings/Required Return)
PVGO = $30 - ($4/$0.20)
PVGO = $30 - $20
PVGO = $10.00

How Much of a Stock's $30 Price Is Reflected in PVGO