PVGO different formula?

CFA Level II Equities
#1

I know the PVGO = Market price - (Dividend/Required Return)
In this problem there is no dividend and I’m just given earnings. I guess we are to assume that all earnings are paid as dividends? Kind of nit picky but I’m curious.

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.

Explanation

The PVGO is $0.56:

PVGO = $41 – ($3.64 / 0.09) = $0.56

(Study Session 10, Module 27.2, LOS 27.e)

Question ID: 1209684

#2

Yes, to calculate the value of a zero-growth firm, the dividend is assumed to be 100% of earnings, since there are no positive-NPV projects to invest in

#3

Thank you!

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