A Blueberry muffin for you guys… just to keep the spirits high for the day. Which of the following statements about dividend discount models (DDM) is FALSE? A) The DDM can only be applied to firms that currently pay dividends. B) A DDM can be broken into several stages of growth. C) The H-model is a two-stage growth model. D) The DDM can be applied to all firms.
D indeedy. i’m making blueberry pancakes right now. big fan of the blueberry.
D as in Happy Mother’s Day!
I recall reading you can use the DDM when a firm is expected to pay divs in the future. The only wrinkle in that case is the added discounting.
Why is A true? Can’t I have A and D?
A because you can use projected future dividends.
thats weird, im eating a blueberry muffin as i speak.
jalmy8 Wrote: ------------------------------------------------------- > thats weird, im eating a blueberry muffin as i > speak. For shame! Didn’t your mother teach you not to speak with your mouth full?
I think A too… siggh…I even remember doing this questions…wondering the same thing about the fact that dividends can be projected so is schweser looking for that answer? unfortunately I don’t remember if thinking that way had done me any good or not… what is the firm has current negative earnings though? I guess it can’t stay negative forever…so eventually you could forecast divs… ok i’m blabbing… stick with A
A. D can work if you make the assumption that a firm will eventually pay a dividend…you just need to predict when, which is exactly why A is the answer. It is certainly not the best valuation technique for some firms, but you can use if for any of them.
A Same reason as Sponge Bob.
… The correct Answer is A guys!!! Which of the following statements about dividend discount models (DDM) is FALSE? A) The DDM can be applied to all firms. B) A DDM can be broken into several stages of growth. C) The H-model is a two-stage growth model. D) The DDM can only be applied to firms that currently pay dividends. Your answer: A was incorrect. The correct answer was D) 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.
Well those letter choices don’t match your original post. The answer they describe is your option A. oops, didn’t read your note before jumping into the answer…my bad.
damn dinesh…you initial post has the options the other way round… why you gotta do that?!
I had changed them. Because as per the CFA myth. NEVER CHOSE A. If you think A is the answer then you are really missing the big picture lol. So I made that option from D to A. I have seen that emperically adds 10+ people in to the trap of getting the wrong ans.