DCF & WACC
Why must the perpetuity growth rate be strictly less than WACC? What happens mathematically if it isn't?
Model answer
The Gordon formula TV = FCF_N x (1 + g) / (WACC - g) requires WACC > g for convergence. If g = WACC, the denominator is zero and TV is undefined (infinite). If g > WACC, the denominator is negative,…
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