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ARGH!!!

The two-stage FCFE model is suitable for valuing firms that:

A) are in an industry with significant barriers to entry.

B) have very high but declining growth rate in the initial stage.

C) have moderate growth in the initial phase that declines gradually to a stable rate.

D) are growing at a constant growth rate equivalent to that of GNP.

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C?

A

C

C?

B ? what is the answer?

A

C is declining gradually, so i dont think its a definite two step. thats my rationale

I would say B.

damn you guys are fast!!! do you all have a paper weight on your F5 button or what???

gonna wait for some more responses….

The H model is a 2-stage model with the linear decline from the first stage to the second stage built into the model.

Storko,

Couldn’t a two stage still incorprate the H-model for the gradual decline?

EDIT: McLeod beat me to it.

now does it decline gradually in year one or after year one? if it’s after year one, shouldn’t the h model be used? i’m thinking a.

my bad,
i am really bad at the cfa. the end boss is too hard for me.

C would be the case of using the H model - gradually declining. C is incorrect.

common mumu what is the answer?

wonder2008 Wrote:
——————————————————-
> C would be the case of using the H model -
> gradually declining. C is incorrect.

The H-model is a 2-stage model

H model is a version of the two stage, no?

EDIT: Can McLeod read my mind??????

B for me. C looks like 3 stage.

CFA level II Candidate.

mwvt9 Wrote:
——————————————————-
> H model is a version of the two stage, no?
>
> EDIT: Can McLeod read my mind??????

The answer to your question is Yes.

^yes H-model is a 2 stage model .. with a declining growth assumption

McLeod81 Wrote:
——————————————————-
> mwvt9 Wrote:
> ————————————————–
> —–
> > H model is a version of the two stage, no?
> >
> > EDIT: Can McLeod read my mind??????
>
>
> The answer to your question is Yes.

Which question are you ansewing…about the H-model or reading my mind?

mwvt9 Wrote:
——————————————————-
> McLeod81 Wrote:
> ————————————————–
> —–
> > mwvt9 Wrote:
> >
> ————————————————–
>
> > —–
> > > H model is a version of the two stage, no?
> > >
> > > EDIT: Can McLeod read my mind??????
> >
> >
> > The answer to your question is Yes.
>
> Which question are you ansewing…about the
> H-model or reading my mind?

The mind reading question.

So what is the answer (so I can get back to work)?

But would the H model be used in the case of FCFE? It says FCFE in the question. As far as I know it is a dividend discount model.

Can someone correct me please?

mumukada Wrote:
——————————————————-
> damn you guys are fast!!! do you all have a paper
> weight on your F5 button or what???

How did you know? But the weight keeps falling and I miss a question or 2. Any permanent solution to this?

Yep, I’m thinking B) and C) are definitely out. You would use the H-model for C) (ie. gradual, linear drop decrease in g)

I’m trying to rationalize the barriers to entry thing…thinking that they would experience supernormal growth in a period where they have no competition. At some point, that would take a nose-dive off the cliff I think if a flood of new competitors finally made it in the door. I don’t know…I could see them trying to trick us with some BS like this where we have to incorporate some rational of the industry life cycles or something.

I’ll go with A)

how come no one is jumping on the storko train and choosing A?
two stages, before and after.

A version of the H model can be used with any discounted cash flow model (ie Dividends, FCFF, FCFE).

A… what is the answer??

I thought any model could be used for Dividends and FCFF or FCFE. You are just using differect cash flows to discount, but I could be wrong wonder.

storko Wrote:
——————————————————-
> how come no one is jumping on the storko train and
> choosing A?
> two stages, before and after.

Why do you think barriers to entry would change? Maybe you can convince me to jump on the train.