Calculate the present value of growth opportunities

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Reference no: EM131067149

You expect Seton Venture to have a ROE of 18%, a beta of 1.25, an expected earnings per share (E1) of $4.73, and a stable retention ratio (b) of 70%. The expected market return for future years is 12%, and the 10-year Treasury note is yielding 1.8%.

a) Calculate the intrinsic value estimate of Seton Venture stock (V0) according to the constant growth DDM.

b) Calculate the Present Value of Growth Opportunities (PVGO).

c) Calculate the justifiable forward P/E and trailing P/E according to the constant growth DDM.

d) If the expected ROE for Seton Venture has been revised down to 14% from 18%, recalculate the V0, PVGO, and the justifiable forward P/E and trailing P/E. Discuss whether these changes in V0, PVGO, and the justifiable forward P/E and trailing P/E are consistent with the concepts that we learned from class.

Reference no: EM131067149

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