Explanation

The formula for stock value is:

$V_0 = \frac{E_1}{r} + PVGO$

Rearranging for PVGO:

$PVGO = V_0 - \frac{E_1}{r}$

Where:

• $V_0$ = stock price = $72
• $E_1$ = EPS = $3.50
• $r$ = required rate of return = 7.5% = 0.075

$PVGO = 72 - \frac{3.50}{0.075}$ $PVGO = 72 - 46.67$ $PVGO = 25.33$

The present value of growth opportunities is $25.33, which corresponds to option A.

Answer: A