10. You are trying to assess the growth opportunities of two different companies. You have heard that the P/E multiple is a good variable to compare growth opportunities across firms. Firm A has a price of $60 per share and EPS of $3 per share. Firm B has a price of $100 per share and EPS of $5 per share. Firm A has a beta of 1.20, and Firm B has a beta of 0.8. The risk-free rate is 4%, and the market risk premium is 6%.

a. Calculate the present value of growth opportunities (PVGO) as a percent of price for Firm A and for Firm B. (4 points)

b. Does comparing P/E multiples help in determining which firm has more growth potential? Why or why not? (4 points)