FIN+4414+-+Present+Value+of+Growth+Opportunities

FIN+4414+-+Present+Value+of+Growth+Opportunities - More...

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Present Value of Growth Opportunities
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P 0 = E 1 /r S + PVGO g = BR If B = 0 or r S = R = ROE, Then PVGO 0 Present Value of Growth Opportunities P 0 = E 1 /r S
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Let: E t = E 0 (1 + BR) t Then: P 0 = E 0 (1 + BR)(1 - B) r S - BR E 1 (1 - B) Present Value of Growth Opportunities D 1 = E 0 (1 + BR)(1 – B) r S - BR
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If r S = R = ROE, Then P 0 = E 1 (1 – B) r S (1 – B) E 1 r S PVGO 0 Present Value of Growth Opportunities P 0 = E 0 (1 + BR)(1 - B) r S - BR E 1 (1 - B) r S - BR
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B r S r S r S 0 R R R PVGO PVGO PVGO PVGO 0 0 0 0 > > < < Present Value of Growth Opportunities
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r S R PVGO 0 > < Firms Must Take On Projects Worth
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Unformatted text preview: More Than They Cost Firms Must Take On Projects With Positive Net Present Value Present Value of Growth Opportunities P = E 1 /r S + PVGO E 1 /P = r S E 1 /P = [r S ][1 - PVGO/P ] Present Value of Growth Opportunities / PVGO PVGO PVGO > < E 1 /P r S r S r S < > Present Value of Growth Opportunities E 1 /P E 1 /P...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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FIN+4414+-+Present+Value+of+Growth+Opportunities - More...

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