yodacaia

safe to assume PVGO will be negative when ROE is less than r <<-- how are you coming to this conclusion?


PVGO = present value of future growth, if its 0 there is no future growth,

ROE = 5%
Equity = 1000

Earnings = .10*1000 = 100
let's say r = 10%

V0 = 50/.1 + PVGO
let's say pvgo =0;

then you have value of stock = 500. nothing wrong with it. each year you'll generate 50 bucks and distribute it as dividend. ROE < r but PVGO is 0.