Present Value Of Growth Opportunities
It is a valuation model in which net present value of a firm’s future investments is explicitly examined. It is calculated by finding the difference between price of equity with constant growth and price of equity with no growth.
PVGO = P(Growth) - P(No growth) = [D1/(r-g)] - E/r
D1 = Dividend for next period
r = Cost of Capital or the capitalization rate of the company
E = Earning on equity
g = The growth rate of the company.