Question

What happens if your discount rate is (or WACC) is less than your growth rate in the estimation process? What would you do if this was the case for an estimation that you had undertaken?

Answer 1

Solution :-

if your discount rate is (or WACC) is less than your growth rate in the estimation process than the Stock price is not calculated as per Gordon model

if Discount Rate is less than the growth rate then the calculated stock price is negative which never possible.

Estimation is not correct in case discount rate is less than growth rate as We always want something more so if growth rate is X then always discount rate is more than X

if this was the case for an estimation that you had undertaken then in this case we need to apply another method either walter model or another way that is calculating by Present Value of Cash flows normally