Final answer:
The PVGO is calculated as the difference between the stock price with growth and without growth. Given the $0.93 dividend, 7% discount rate, and 3% growth rate, the calculation results in a PVGO close to $10. However, since this does not match the given options exactly, verification of data may be required.
Step-by-step explanation:
The PVGO (Present Value of Growth Opportunities) of a firm is the present value of a company's future earnings that are not attributable to the current operations which are valued as if profits are distributed as dividends perpetually. Given a firm that pays a $0.93 dividend per share with a 7% discount rate and a constant growth rate of 3%, the price of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model) which is as follows:
P = D / (r - g)
Where:
P = Price of the stock
D = Dividend per share
r = Discount rate
g = Growth rate
In this particular case, substituting the given numbers
P = $0.93 / (0.07 - 0.03)
After calculation, we find:
P = $0.93 / 0.04 = $23.25
This price contains both the value of current operations and the present value of the expected growth opportunities (PVGO). To calculate PVGO, we need to subtract the current operations value, which is if the firm was not growing. For a non-growing firm, the dividend model simplifies to:
P_no_growth = D / r
P_no_growth = $0.93 / 0.07 = $13.29
So, the PVGO is the difference between the price with growth (P) and the price without growth (P_no_growth):
PVGO = P - P_no_growth
PVGO = $23.25 - $13.29 = $9.96
However, this PVGO calculation is not matching with the provided options (a) 9.3 (b) 13.3 (c) 23.3 (d) 10. The calculation produces a result close to option (d) $10, but since it is not exactly one of the options, it is important to check for possible errors in the provided data before finalizing the answer.