Ok this is pissing me off. Page 360 of equity. Question 8C. from the book, PVGO = P0 - E1/R So why are they using $2 to come up with the answer. Shouldnt it be 2*(1+g) = 2 * 1.084??? In other words, isnt E0 = 2. If you look at 8B, D0 = 2 * (1-0.6) and D1 = 2*(1-0.6)*1.084. So E1 should be what I mentioned above and thats what we should be using to come up with PVGO. No???
This was one of the questions that threw people off on last year’s exam. Apparently, if you used the CFAI texts you were taught to use E0 but if you used Schweser/Stalla you were taught to use E1.
Well that doesnt make any sense. Their own formula mentions E1, not E0. I sent them an email regarding this as well. I wanted to see what people thought. If it is E0 then they should go ahead and adjust the formula to show E0 not E1.
Let us know what their response is.
yea I cant wait to hear what they have to say on that one. I hate this. Sorry for the frustration lol.
intelo Wrote: ------------------------------------------------------- > yea I cant wait to hear what they have to say on > that one. I hate this. Sorry for the frustration > lol. it’s your party you can cry if you want to, scream if you want to,…
…you would cry too if it happened to youuuuu
I did cry!!! lol. We have enough to worry about as it is. We dont need additional confusions. This is a high probability question. It’s all over their book.
PVGO formula assumes a no-growth option. So E0=E1… I had sent them this as an erratum quite some time ago… and had received this response: Thank you for your query; the text is correct as written. When there is no growth, E0 = E1 = E2, so the solution is correct. Please note that on page 325, E1 is defined as the constant level of earnings or the average earnings of a no-growth company.
CP for president! that makes perfect sense. But still, the way they show the formula is misleading. thanks CP