Asked by Debbie Annang on Jul 03, 2024
Verified
When Google's share price reached $475 per share, Google had a P/E ratio of about 68 and an estimated market capitalization rate of 11.5%. Google pays no dividends. Approximately what percentage of Google's stock price was represented by PVGO?
A) 92%
B) 87%
C) 77%
D) 64%
Market Capitalization Rate
The expected return on an investment in the market, often used in the valuation of stocks and to determine a company's cost of equity.
PVGO
Present Value of Growth Opportunities; a model that estimates the value of a firm's shares excluding its current earnings, focusing on future growth.
P/E Ratio
Price-to-earnings ratio, a valuation metric for determining the relative worth of a company's shares by dividing stock price by earnings per share.
- Comprehend the principle of Present Value of Growth Opportunities (PVGO) and its impact on the valuation of a firm.
Verified Answer
HM
Hannah McGaunnJul 04, 2024
Final Answer :
B
Explanation :
EPS = $475/68 = $6.985
PVGO = $475 − ($6.985/0.115) = $414.26
$414.26/$475 = 87.21%
PVGO = $475 − ($6.985/0.115) = $414.26
$414.26/$475 = 87.21%
Learning Objectives
- Comprehend the principle of Present Value of Growth Opportunities (PVGO) and its impact on the valuation of a firm.