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FinanceQ&A LibraryAdobe Systems has come out with a new and improved product. As a result, the firm projects an ROE of 22.5%, and it will maintain a plowback ratio of .50. Its projected earnings are $3.75 per share. Investors expect an 18% rate of return on the stock.What would the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 40% of its earnings?Question

Asked Nov 13, 2019

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Adobe Systems has come out with a new and improved product. As a result, the firm projects an ROE of 22.5%, and it will maintain a plowback ratio of .50. Its projected earnings are $3.75 per share. Investors expect an 18% rate of return on the stock.

What would the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 40% of its earnings?

Step 1

**Calculation of P/E Ratio and Present Value of Growth Opportunities (PVGO):**

The P/E Ratio is **6.67** and present value of growth opportunities is **$4.17**.

**Excel Spreadshee...**

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