Final answer:
The formula for Present Value of Growth Opportunities (PVGO) is PVGO = Price - ∞[(Earnings per Share) / (Required Return)], where Price is the current stock price, Earnings per Share reflects the company's earnings, and Required Return is the investor's expected rate of return.
Step-by-step explanation:
The formula for PVGO, which stands for Present Value of Growth Opportunities, is derived from the concept that the price of a stock can be seen as the sum of its earnings with no growth, known as the no-growth value, and the present value of the growth opportunities that are expected to occur. The general formula is:
PVGO = Price - ∞[(Earnings per Share) / (Required Return)]
Here, 'Price' is the current market price of the stock, 'Earnings per Share' is the earnings attributed to each outstanding share, and 'Required Return' is the rate of return required by the investors. This formula is most frequently used in the context of financial valuation and modeling.