Under what circumstance(s) will the constant dividend growth model of stock valuation not be workable

E.) The growth rates exceeds the required returns by stockholders

Explanation:

The formula for using the Constant Dividend Growth Model to calculate stock price is;

Price = [Current Dividend (1 + growth rate)] / (Required return - growth rate)

From the formula it is shown that if the growth rate is higher than the required return, the denominator would be negative which would make the price of the stock negative. Since prices of stock cannot be negative, the Constant Dividend Growth Model would have returned an inaccurate figure.

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