Reading 40: Discounted Dividend Valuation-LOS b 习题精选 center, whether, discount, face, 2010

土豆妮

Session 11: Equity Valuation: Industry and Company Analysis in a Global Context
Reading 40: Discounted Dividend Valuation

LOS b: Determine whether a dividend discount model (DDM) is appropriate for valuing a stock.

 

 

 

The Gordon dividend discount model (DDM) assumes:

A) a constant growth rate for future dividends.

B) all earnings will be paid out in the form of dividends as they are earned.

C) a variable growth rate for future dividends.

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The Gordon DDM is also known as the constant growth model, because it assumes that dividends will continue to grow at a constant rate. It is most appropriate for a stable, mature firm.

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A dividend discount model (DDM) is most appropriate for a:

A) firm with unstable growth prospects.

B) firm in the mature stage of the industry cycle.

C) firm in the early growth stage of the industry cycle.

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The DDM is most appropriate for firms that have predictable dividend payouts. Mature firms generally have stable growth prospects that allow forecasting of dividends with some confidence.

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

A) The DDM can be applied to all firms.

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

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

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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.