Next year's earnings are estimated to be $2. The company plans to reinvest 20% of its earnings at 15%. If the cost of equity is 8%, what is the present value of growth opportunities

$15.33

Explanation:

Present value of growth opportunities = Value of company with growth - Value of company without growth

Value of company with growth:

Using Gordon Growth:

Growth rate = Reinvestment rate * Earnings reinvested

= 20% * 15%

= 3%

Value with growth = ( Earnings * Dividend payout ratio) / (Cost of equity - growth rate)

= (2 * (1 - 20%) ) / (8% - 3%)

= $32.00

Value without growth:

= Earnings / Cost of equity

= 2 / 12%

= $16.67

Present value of growth opportunities = 32 - 16.67

= $15.33

answer; i believe the answer is 40,600,000;

answerindustrial revolution;