Answer:
present value of growth opportunities is −$8.34
Explanation:
Value with no growth = expected earning / capitalization rate
Value with no growth = $5/0.12 = $41.67
Growth rate = retention rato * ROE
Growth rate = 0.7 * 15 = 10.5%
Value with growth = $5*(1-0.7)/(0.15-0.105) = $33.33
Therefore present value of growth opportunities = Value with growth - Value with no growth
PVGO = $33.33-$41.67 = −$8.34
