spartanag07

its just breaking up the intrinsic value into 2 parts. part 1= E1/r (this is the value of the company if earnings stayed constant i.e. 0 growth).  part 2= the present value of growth ops. so the question asks you to find out the PVGO.  You can solve for PVGO by assuming zero growth and solving for E1/r.  Once you get E1/r, then you can solve for PVGO using  Vo=E1/r + PVGO