Ace Ventura, Inc., has expected earnings of $5 per share for next year. The firm's ROE is 15%, and its earnings retention ratio is 40%. If the firm's market capitalization rate is 10%, to the nearest dollar what is the present value of its growth opportunities

$25

Explanation:

Value with no growth = Expected earnings/Market capitalization rate

= $5/10%

= $5/0.1

= $50

Growth rate = Earnings retention ratio × ROE

Growth rate = 40% × 15%

= 40/100 × 15/100

= 0.4 × 0.15

= 0.06 = 6%

Value with growth = [$5 × (1-0.4)]/(0.10 - 0.06)

= ($5 × 0.6)/0.04

= $3/0.04

= $75

Present value of growth opportunities will now be:

= Value with growth - value with no growth

= $75 - $50

= $25

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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