Present value of growth opportunities growth, instead, question

PieMan

Hey guys, I'm a bit confused with what's in the text and the EOC questions:

Vo = E1 /R + PVGO according to page 331 of Equity yet in question 8 of EOC, the question gives us Eo, asks us to calculate the PVGO and uses Eo instead of E1 to calculate PVGO. Have I misunderstood the formula?

tikfed

Good catch. Hopefully, they will be precise for the exam. In the problem, they presume that there will be no growth starting beginning of 2009 (whereas in the text they assume no growth - implicitly- after the first year - which is technically more accurate).

bbtomato

please remember that PVGO only applies to a NO GROWTH COMPANY. CFAI text is very clear about this.

Once you have NO GROWTH - it means E1=E0=E(Whatever. index)

so use E0 once you have a PVGO asked for.

CP