Question: As shown in equation (6.9), the price equation for a firm with positive growth opportunities is where P0 is the current stock price, X0 is

As shown in equation (6.9), 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, r is the cost of equity capital, and NPVGO is the net present value of future growth opportunities. Recent values of P0, X0, and r for several companies are:

As shown in equation (6.9), the price equation for a

Required:
1. Why does eBay have a higher cost of equity capital (r) 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 greater than Home Depot€™s? Why is Walmart€™s NPVGOnegative?

PoNPVGO xo X, Brunswick eBay Home Depot S36.19 57.21 67.30 70.49 40.31 0.54 1.99 2.81 4.86 2.21 0.121 0.081 0.075 0.055 0.063 Walmart Walgreen

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