What is the present value of the growth opportunity for


An all-equity company has a return on assets of 15%. The earnings of the company in the next year is expected to be $5/share and the company follows a payout policy to distribute 60% of its earnings as dividends. If the required return of the stock is 10%, what is the present value of the growth opportunity for this company?

(Hint: You need to discuss two cases—with and without retention.)

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Financial Management: What is the present value of the growth opportunity for
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