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What if a company does not pay dividends? What if the required rate of return is...

What if a company does not pay dividends? What if the required rate of return is greater than the growth rate?

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Answer #1

If company doesn't pays dividends then for stock valuation dividend discount method can't be used. We need to use multiple method. That is comparing the ratios or other multiple of comparative firms.

That's a normal case that required return is greater than growth rate , if you see Gordon growth formula , ( required return - growth rate ) factor comes in denominator so, this gets higher and stock price decreases . As it's inversely proportional to stock price.

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