To calculate the present value of growth opportunities (PVGO), use the following formula:
\[ \text{PVGO} = \text{Share Price} - \frac{\text{EPS}}{\text{Cost of Equity}} \]
Let's calculate the PVGO for Company Alpha with the following information:
EPS = $2,000,000 / 1,000,000 = $2
PVGO = $20.00 - ($2 / 0.125) = $20.00 - $16 = $4