CP I found you mentioned the below on another post and want to confirm that you would use E0 instead of E1 for the PVGO calculation, question 8C on p.360 vl4. So you assume that there’s no growth even though g=1-payout(ROE)? Why assume no growth and why the CFAI book is showing to use E1 on formula (12) p.325? E0 vs. E1 is reprised on Q8© in the curriculum > on the chapter as well. > > PVGO only applies to “no-growth” company. So use > E0, even if E1 is given or g is provided and > enables you to be able to calculate E1. Thanks
its still the same. if today (2008) the company has $2 EPS, as this isn’t changing becasue the company pays out everything, it will still be $2 next year, hence the perpetuity.
Think of it this way- you can still use E1, it’s just that since g=0, E0=E1.