would you remember this or ignore it? following, currently, statements, only

Sunshine4ever

Which of the following statements about dividend discount models (DDM) is FALSE?

A) The DDM can be applied to all firms.

B) The DDM can only be applied to firms that currently pay dividends.

C) The H-model is a two-stage growth model.


Your answer: A was incorrect. The correct answer was B) The DDM can only be applied to firms that currently pay dividends.

Although it is seldom used by analysts for this purpose, the DDM can be used to value any firm, even those that are not paying dividends. The future dividends must be projected as to amount, timing and growth; and this is difficult to do with confidence for some firms.