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1 December, 08:11

Parcel Corporation expects to pay a dividend of $5 per share next year, and the dividend payout ratio is 50 percent. If dividends are expected to grow at a constant rate of 8 percent forever, and the required rate of return on the stock is 13 percent, calculate the present value of growth opportunities.

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  1. 1 December, 09:48
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    The present value of growth opportunities is $23.08

    Explanation:

    EPS = dividend/payout ratio

    = 5/50%

    = 10

    The present value of growth opportunities

    = (Price with growth - EPS) / cost of capital

    = (100 - 10) / 0.13

    = $23.08

    Therefore, The present value of growth opportunities is $23.08
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