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How the Potential Payback Period (PPP) Extends and Surpasses the Gordon Growth Model (GGM) at the Limits of Financial Theory

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Preprints.org
DOI
10.20944/preprints202505.1451.v1

This article examines how the Potential Payback Period (PPP) extends and surpasses the Gordon Growth Model (GGM) at the limits of financial theory. Both models rely on discounted future cash flows and assume growth and required return, yet diverge under edge-case conditions. As the growth rate nears the discount rate, the GGM becomes unstable, producing infinite valuations. In contrast, the PPP remains coherent, resolving indeterminate forms via L’Hôpital’s Rule. When both growth and discounting are zero, PPP reduces to the P/E ratio, affirming its role as a generalization of traditional metrics. These findings highlight PPP’s robustness and clarity where GGM fails.

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