SMHKR
March 1, 2014, 9:25pm
#1
In the practice questions of Dividend Discount Valuation, question # 8 section C (pg 275) calls for calculating the PVGO.

The answer shown is using E0. Why isn’t E0 grown to E1 and then used to calculate the PVGO.

The formula shown in text is V = E1/r + PVGO so i’m confused.

When we calculate PVGO we assume that company distributes all of its earnings…Right? So how a company can grow when it is not reinvesting anything??

thats Why Eo=E1 or Eo(1+00)

Simply we just calculated the perpetuity and subtract it from the current price we get the PVGO.

hope it helps.

In a PVGO calculation, the value is decomposed into the non-growth portion (E0 = E1 = . . . = E_n_) and the growth portion (PVGO).

SMHKR
March 2, 2014, 5:30pm
#4
It sure just works like a perpetiuity. Thanks for the explanation!

Hey, quick question for you all - when calculating PVGO do you use the current market price or your intrinsic value that you calculated by another method? I’ve seen both.

Thanks,