Part 2 of 3 Stock Value, Valuing Stocks, Common Finance Stock Valuation

[RoseBing]

Instructor, can you tell me....why does the Required Return have to be larger than the growth rate???

[MBAbullshitDotCom]

@RoseBing Hello Rose! In the real world, it's always possible to have a growth rate bigger than required return or larger than a bank rate or discount rate. However, "this formula" only works if the growth rate is smaller than the required return. If your growth rate is bigger than required return, it becomes a lot more complicated, and so this formula won't work. You can check out my other video on "Business Valuation" for slight more complex problems. Cheers!

[ConceptVBS]

@RoseBing

If the Required return is less than growth rate, then the denominator will become a negative number.

A stock value shouldnt really have a negative value.