b_sea93

The first P/E (1-b / r-g ) is the justified leading PE

The second one is the intrisic PE

b_sea93

Dreary - the part that is confusing is that Intrinsic PE in presence of inflation ignores the FF/GF terms. Either I'm missing something, or I think it's an oversimplication in the curriculum that assumes the company has zero FF or GF when considering inflation.

Eg, without inflation, intrinsic PE is :
PE = 1/r + FF * GF

Now when we turn on inflation, we adjust the first 1/r term to account for inflation passthrough, but the second FF*GF term is dropped to zero.
PE = 1 / (r - Lambda*inflation)

Its obvious the FF/GF terms are dropped if inflation is zero, it only leaves the first term.