One of the problems with using the perpetuity formula for anything during times of very low interest rates, (such as now, as the long bond is at the lowest rates since being issued in the 70's), is that prices can quickly approach infinity. This is due to the convex nature of a bond's yield. I am sure most of you are familiar with basic bond math, so suffice it to say that it takes a correspondingly greater increase in the price of a bond to go from 6% to 5% than from 10% to 9%.
Let's say that we are now in a period where interest rates will remain permanently low, due to, say, massive global oversupply, Asia's recession, whatever. Now, if you were to use the long bond's yield of 5.537% to discount your growth rate of 5%, the prices approach absurd levels. At these rates, every dollar of earnings would be valued at over 186 dollars! The same dollar using a discount of 7% would be worth 50 dollars, still not cheap. And as rates go lower, the problem becomes worse, especially when you consider what happens if (when) rates start to rise again. These astronomically high valuations quickly plummet to earth, causing massive asset devaluations.
So, if you have a company expected to grow at 5% forever, and rates continue to go lower, how do you use this equation effectively??? Even if you use the 50% of intrinsic value method, you still are paying high prices for stocks.