Reading 46: Discounted Dividend Valuation - LOS s ～ Q1-5 model, class, black, style

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1．If the three-stage DDM model results in extremely high value, the:

A)   growth rate in the stable growth period is lower than that of GNP.

B)   growth rate in the stable growth period is probably too high.

C)   high growth period is too short.

D)   transition period is too short.

2．The H model will NOT be very useful when:

A)   a firm is growing rapidly.

B)   growth is expected to decline gradually over time as a firm gets larger.

C)   a firm has low or no dividends currently.

D)   a firm has a constant payout policy.

3.Multi-stage dividend discount models can be used to estimate the value of shares:

A)   only under a limited number of scenarios.

B)   under only constant growth assumptions.

C)   only when the growth rate exceeds the required rate of return.

D)   under an almost infinite variety of scenarios.

4.One of the limitations of the dividend discount models (DDMs) is that:

A)   they are very sensitive to growth and required return assumptions.

B)   given the inputs, they are not very precise in their valuations.

C)   they are computationally difficult.

D)   they are conceptually difficult.

5.Multi-stage growth models can become computationally intensive. For this reason they are often referred to as:

A)   R-squared models.

B)   exponential models.

C)   spreadsheet models.

D)   quadratic models.

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答案和详解如下：

1．If the three-stage DDM model results in extremely high value, the:

A)   growth rate in the stable growth period is lower than that of GNP.

B)   growth rate in the stable growth period is probably too high.

C)   high growth period is too short.

D)   transition period is too short.

The correct answer was B)

If the three-stage DDM results in an extremely high value, either the growth rate in the stable growth period is too high or the period of growth (high plus transition) is too long. To solve these problems, an analyst should use a growth rate closer to GNP growth and use shorter high-growth and transition periods.

2．The H model will NOT be very useful when:

A)   a firm is growing rapidly.

B)   growth is expected to decline gradually over time as a firm gets larger.

C)   a firm has low or no dividends currently.

D)   a firm has a constant payout policy.

The correct answer was C)

The H model is useful for firms that are growing rapidly but the growth is expected to decline gradually over time as the firm gets larger and faces increased competition. The assumption of constant payout ratio makes the model inappropriate for firms that have low or no dividend currently.

3.Multi-stage dividend discount models can be used to estimate the value of shares:

A)   only under a limited number of scenarios.

B)   under only constant growth assumptions.

C)   only when the growth rate exceeds the required rate of return.

D)   under an almost infinite variety of scenarios.

The correct answer was D)

Multi-stage dividend discount models are very flexible, allowing their use with an almost infinite variety of growth scenarios.

4.One of the limitations of the dividend discount models (DDMs) is that:

A)   they are very sensitive to growth and required return assumptions.

B)   given the inputs, they are not very precise in their valuations.

C)   they are computationally difficult.

D)   they are conceptually difficult.

The correct answer was A)

DDMs are very sensitive to the growth and required return assumptions, and it is often wise to interpret the value as a range rather than a precise dollar amount.

5.Multi-stage growth models can become computationally intensive. For this reason they are often referred to as:

A)   R-squared models.

B)   exponential models.

C)   spreadsheet models.

D)   quadratic models.

The correct answer was C)

The computationally intensive nature of these models make them a perfect application for a spreadsheet program, hence the name spreadsheet models.