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a) EverGrow Ltd. has a history of offering new and improved products to the market. As a result, the firm enjoys a stable ROE of

a) EverGrow Ltd. has a history of offering new and improved products to the market. As a result, the firm enjoys a stable ROE of 25% and it will maintain a dividend payout ratio of 0.70. Its earnings this year is forecasted to be $2 per share. Investors expect 12.5% pa rate of Return from the equity shares of EverGrow Ltd.

i. Calculate the intrinsic value of the equity shares of EverGrow Ltd.

ii. Estimate the present value of growth opportunities (PVGO) of the firm? Show your calculations.

iii. Interpret the estimated PVGO value of EverGrow. What information does it convey?

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