1.What is the PVGO for a firm that will earn $2.00/share next year, will pay out 30% of its earnings, has 9% cost of equity, and a growth rate of 3%?Use the sustainable growth rate equation to explain why the answer is the way it is.

$3.33; it adds a material amount, but not most, of the value of the stock

$0.47; it adds virtually no value to the stock

$4.42; it adds exactly half the value of the stock

$5.29; it adds most of the value of the stock

2.What is the PVGO for a firm that will earn $2.00/share next year, will pay out 60% of its earnings, has 5% cost of equity, and a growth rate of 3%?Use the sustainable growth rate equation to explain why the answer is the way it is.

$39.00; it adds less than half the value to the stock

$35.00; it adds most of the value to the stock

$38.00; it seems to emit a mystical power, yet it adds only a small amount of value to the stock

$36.00; it adds most of the value of this stock

3.Use FCFE to determine the value of a company's stock price when last year's sales were $4.75/share, sales growth is expected to be 2.5% for the next four years and 1.75% after that, profit margin is expected to remain around 18%, return on equity has been averaging 13.5%, and the required rate of return is 8.5%.What is the PVGO and does it constitute a large risk to the stock price?

$14.09; this is nearly all the value of the firm which indicates it is riskier than average

$2.80; not much risk since growth is such a small share

$10.20; it could present some risk since it is almost a third of the value of the firm

$1.30; it doesn't pose much risk since it's only a small part of the value of the company