Arizona Corporation will have earnings of $2.50 per share this year. The company plans to reinvest 25% of earnings back into the business. Management projects a rate of return of 18% on all new projects. The the required Market return is 12.5%. Why is there a positive Present Value of Growth Opportunities (PVGO) for Arizona Corporation?

Multiple Choice

• None of the above

• The Plowback Ratio is greater than the Return on Equity

• The Return on Equity is greater than the required return

• The required return is greater than the Plowback Ratio

• The Retention Ratio is greater than the Plowback Ratio