Hi guys, I have a very basic question. The material states the formula for PVGO as V0- (E1/Re) which translates to Value with growth-Value without growth. If we assume the growth is zero, and have both E0 and E1 given in the question, should we use E0 or E1 to calculate the PVGO (Since if growth is zero, E0 should continue over the years)? I have come across an institute question which uses E1 and it has made me quite confused
I’ve talked with CFA Institute about this confusion more than once, and they keep saying that they’ll clear it up.
Apparently they haven’t.
I would use E0. If that doesn’t give you one of the answer choices, then try E1.
Alright, thanks a ton!
My pleasure.
1 Like