Question: As shown in equation (6.10), the price equation for a firm with positive growth opportunities is where P0 is the current stock price, X0 is

As shown in equation (6.10), the price equation for a firm with positive growth opportunities is

where P0 is the current stock price, X0 is current reported earnings per share, re is the cost of equity capital, and NPVGO is the net present value of future growth opportunities. Recent values of P0, X0, and re for several companies are:

Required:
1. Why does eBay have a higher cost of equity capital (re) than Wal-Mart?
2. Compute NPVGO for each company.
3. Compute NPVGO as a percent of stock price for each company.
4. Why is eBay's NPVGO as a percent of stock price less than Home Depot's?
5. Why is Walmart's NPVGO negative?

Brunswick eBay Home Depot Walmart Walgreens Boots Alliance P. $45.46 26.21 127.49 63.62 81.82 $2.61 1.84 5.33 4.67 4.11 0.095 0.074 0.067 0.044 0.086

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