When gL=gS for H-model

CFA Level II
#1

I see that it becomes V0 = D0(1+gL)/r + gL

But since (gL-gs) is 0, doesn’t it cancel out the entire right hand side of the equation so where does +gL in the end of the new equation come from?

#2

are you sure it is + ? The formula becomes V0 = D0(1+gL)/(r-gL)

#3

Yea it shows the +gL in one of the Schweser tests. Not sure where the gL came from

#4

It asked to get r using H model, but gS and gL were both 6%, so the second part of the formula gets zero and it becomes like a gordon model. Just find the r. Note that the H model first part is Do(1+gL)/(r - gL)

#5

Well explained.

#6

Those are the best mock questions. You’ve drilled H model, or FCFF from EBITDA, or justified P/B. You’re ready to plug & chug. And then they ask you the question backwards, upsidedown. It tests content agility. Those killed me on CFAI mock, but I had the pieces. Fantastic mock questions.