Is it reasonable to think that a constant growth stock could have g > rs? it is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return?

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5 November, 10:58

Is it reasonable to think that a constant growth stock could have g > rs? it is not reasonable for a firm to grow even for a short period of time at a rate higher than its required return?

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Mccarthy · Answer 1

No, it is not reasonable or logical for a firm to grow indefinitely at a rate higher than its required return. Such a theoretical stock would become so large that it would ultimately go beyond the whole economy. However for a very short period of time, the rate could possibly be higher than the required return especially when the firm is performing excellently.