HKUDS/Vibe-Trading · error · ValuationError

terminal_value: terminal_growth ({growth!r}) must be strictl

Error message

terminal_value: terminal_growth ({growth!r}) must be strictly less than WACC ({wacc_rate!r}); at or above WACC the Gordon-growth terminal value is negative or infinite, not merely a large number. Lower the growth assumption or check the WACC build.

What it means

terminal_value() refuses terminal growth >= WACC: with g at or above the discount rate the Gordon-growth TV = EBITDA*(1+g)/(wacc-g) is negative or infinite, so the library rejects the assumption rather than emitting a meaningless huge number.

Source

Thrown at agent/src/quantlib/valuation/dcf.py:772

            happens to equal ``-final_year_fcff`` exactly, which makes the
            implied-growth reverse-solve's denominator zero.
    """
    _require_assumption(terminal_growth, "terminal_growth", "terminal_value")
    _require_assumption(exit_multiple, "exit_multiple", "terminal_value")

    final_year_fcff = _require_finite(final_year_fcff, "final_year_fcff", "terminal_value")
    terminal_year_ebitda = _require_finite(
        terminal_year_ebitda, "terminal_year_ebitda", "terminal_value"
    )
    wacc_rate = _require_finite(wacc_rate, "wacc_rate", "terminal_value")

    if wacc_rate <= -1.0:
        raise ValuationError(
            f"terminal_value: wacc_rate must exceed -1, got {wacc_rate!r}"
        )
    growth = _require_finite(terminal_growth.value, "terminal_growth.value", "terminal_value")
    if growth >= wacc_rate:
        raise ValuationError(
            f"terminal_value: terminal_growth ({growth!r}) must be strictly "
            f"less than WACC ({wacc_rate!r}); at or above WACC the Gordon-growth "
            "terminal value is negative or infinite, not merely a large number. "
            "Lower the growth assumption or check the WACC build."
        )
    if terminal_year_ebitda <= 0.0:
        raise ValuationError(
            f"terminal_value: terminal_year_ebitda must be positive to derive "
            f"an implied EV/EBITDA multiple, got {terminal_year_ebitda!r}"
        )
    multiple = _require_finite(exit_multiple.value, "exit_multiple.value", "terminal_value")
    if multiple <= 0.0:
        raise ValuationError(
            f"terminal_value: exit_multiple.value must be positive, got {multiple!r}"
        )

    next_year_fcff = final_year_fcff * (1.0 + growth)
    perpetuity_tv = next_year_fcff / (wacc_rate - growth)

View on GitHub (pinned to 80ffdda44c)

Solutions

Lower terminal growth to below WACC (commonly 2-2.5% cap) or revisit the WACC build upward
Check for unit mismatch: both must be decimals (0.07 vs 0.03, not 7 vs 0.03)
Add a pre-flight assertion g < wacc - margin in the modeling pipeline

Example fix

# before
terminal_value(..., wacc_rate=0.065, terminal_growth=Rate(0.07))

# after
terminal_value(..., wacc_rate=0.09, terminal_growth=Rate(0.025))

Defensive patterns

Strategy: validation

Validate before calling

MARGIN = 0.005
assert terminal_growth.value < wacc_rate - MARGIN, f'g={terminal_growth.value} must be below wacc={wacc_rate} - {MARGIN}'
terminal_value(..., terminal_growth=terminal_growth, wacc_rate=wacc_rate)

Type guard

def growth_safe_for_gordon(g: float, wacc: float, margin: float = 0.005) -> bool:
    return g < wacc - margin

Try / catch

try:
    terminal_value(...)
except ValuationError as e:
    if 'strictly less than WACC' in str(e):
        return terminal_value(..., terminal_growth=Rate(min(g, wacc - 0.005)), wacc_rate=wacc)
    raise

Prevention

Cap perpetuity growth at ~2-2.5% or below WACC minus a margin
Re-run the WACC build when rate assumptions change materially
Verify both g and wacc are decimals, never percents

When it happens

Trigger: terminal_value(wacc_rate=0.07, terminal_growth=Rate(0.07)) or growth 0.09 vs wacc 0.07; WACC computed too low relative to a growth assumption of 2-3%.

Common situations: Optimistic perpetuity growth (3%) with a low WACC from a low beta/rate environment; unit mismatch (wacc as 7 vs growth 0.03); widening spreads where the WACC estimate drops below long-run nominal growth.

Related errors

AI-assisted analysis of HKUDS/Vibe-Trading@80ffdda44c (2026-08-28). Data as JSON: /api/errors/75160c6dca55a1fd. Report an issue: GitHub.