 # Two Questions

1. In H Model, it is assumed that the growth rate declines linearly during the high growth period? If the high growth rate does not decline but remains constant, we cannot use H Model as we would not be able to calculate H? Then how the answer in after noon mock exam Q 50 is using H model when the growth rate remains constant at 20 % per year during 4 years? 2. In calculating the Working Capital for valuations (in FCFF and FCFE cals), we subtract cash and cash equivalents from current assets and N/P and current portion of LTD from current liabilities as mentioned in CFAI text. This was not done in finding the answer in afternoon mock Q 51?

"1. In H Model, it is assumed that the growth rate declines linearly during the high growth period? If the high growth rate does not decline but remains constant, we cannot use H Model as we would not be able to calculate H? Then how the answer in after noon mock exam Q 50 is using H model when the growth rate remains constant at 20 % per year during 4 years? " I am not sure where this question is, but mathamticlly the H model simplifes to the gordon model when the rate does not change…so just use the gordon rate…why are you worried about calculating h, it is going to be multiplied by the rate diff which is 0 LOOL if you can show me the actual question for teh second issue, i could help, i dont like throwing answers without seeing the quetsion

I have no idea what you’re talking about on either count. you should probably post the questions.

of never mind, ignore what i said above, that applies to a diff thing i have seen before… what you have here is just your everyday H model, the assumptions … you are told to use jatin’s estimates… and he/she said that it starts with a high rates and declines linearly…you are thinking about the original assumptions now regarding the second part, you SURE are right… first of all it is easy to see that the NP is double counted in net new borrow, and in working capital… i would have been okay with them including it in working capital, but leaving it out of net borrowing… but now CASH thats a big mistake! i can email CFA about it and they would add it to the erreta, i would just wait to get someone else opinion even though it seems obvious