PVGO, E or E1/r current

therecruit

Do we use current or next year earnings to calc pvgo?

economicz

next years.

benbenxiong

PVGO = P0 - E1/r

E1 being next year's

ningning1984

PVGO assumes no growth earnings. E0 and E1 will be the same

liquidity

i disagree.

maryli

by this I mean i agree with the Moose all the way

eoin

if you are paying all earnings in dividends, you are not 'growing' and therefore can determine how much you could theoretically increase your share value by retaining some earnings for future growth...as long as ROE>r then retaining earnings should increase share value due to a positive PVGO

disagree with me all you want.... your choice ;)

ryanlb

PVGO splits value of firm into two components, the growth opportunites and the value of its assets in place. E/r is the assets in place and E is the no growth earings level(E/r = PV of a perpetual cash flow).

thecfawannabe

From what I understand, if it says what is the PVGO on Dec. 31, 2010, then you can use E0 because you have not retained your earnings yet. You are at the point where you make that decision. However, if you are on January 1, 2011, you have to use E1 because the earnings from 2010 have already been reinvested.

In most cases, you will use E1 (check the top of page 190 in the CFAI equity text).

KungFuPanda

This concept is minimally important anyway. I'll put 50$ on "calculate the PVGO for this firm" to not be a question.