24. Options and growth (S23.6) In Chapter 4, we expressed the value of a share of stock...

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24. Options and growth (S23.6) In Chapter 4, we expressed the value of a share of stock as P 0 = EPrS 1 + PVGO where EPS1 is earnings per share from existing assets, r is the expected rate of return required by investors, and PVGO is the present value of growth opportunities. PVGO really consists of a portfolio of expansion options.22

a. What is the effect of an increase in PVGO on the standard deviation or beta of the stock’s rate of return?

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Principles Of Corporate Finance

ISBN: 9781264080946

14th Edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans

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