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.
^lol, well i dono, the time it took you to post this you could have memorized it… add on top of that the time you gona spend seeing what people have to say about it, and you can use that to remember a lot of stuff… anyway, nothing to remember, UNDERSTAND IT, and that should take you 10 secs…
do you agree with it?
It’s a crap question, but yes, I agree with it. I selected A at first, but after reading the explanation I agree with it. Do you follow the answer?
C) The H-model is a two-stage growth model. this is clearly right so it comes down to these 2, and they are clearly mutualy exclusive, given that DDM CAN be applied to all firms, so the wrrong statemnt is B and you select B A) The DDM can be applied to all firms. B) The DDM can only be applied to firms that currently pay dividends. DDM can be applied to non div paying companies, it is just shaky, you have to “guess” when they will start paying div and what that div will be, now I aint no equity analyst but I would rather use a cash flow model
PS: page 310 equity “can the ddm be applied to non div paying shares? in theory it can, as is illustrated later, but in pratice it is generally not” your key word is CAN, you are not being asked if it is used, or preffered. just like you CAN jump off a building, but i doubt you will… anyway this is a general statemnt and not ment to be offensive towards you @lzen5 but why is it that so many guys on AF dont ref the textbooks to find the answers? Most of the time people ask a question, and I answer not cause I am smarter than they are, just cause I bothered spent 10 secs looking for it… The CFAI books are very organized, and you can almost instantly find what your looking for…
its ok, i just wanted a general opinion. i am really paranoid about schweser note being inconsistent with the CFAi books because I didnt buy books this year and now I think I definitely should have. One could always argue if the estimates in a valuation model dont have to be accurate, you CAN potentially use any model to value anything. but I guess the question is to point out that CFAi thinks DDM can be used for everything in theory and it has served its purpose. Thanks for helping 
^ You will pass Level II, or at least I am willing to bet a few bucks that you will You might think your not doing great when you compare yourself to the AF sample You gota remember we not a very representative sample of the test takers… We are people who are working hard to pass this exam, asking questions, doing mocks, worrying, yada yada In the real sample you have a whole lot of people who think they are going to pass the exams because they read the books once and solved EOC. Try to get the full collection of books, level 1, 2, and 3 Schweser is great to get us past the exams, but later in life we might wana go beyond that and actually understand the material deeply…