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Basic Question 1 of 5

If a company is not dividend-paying, we can use ______ to define its cash flows.

I. dividend discount model
II. free cash flow model
III. residual income model
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User Contributed Comments 4

User Comment
loo101 residual income model helps to assess the value of a company. but is it really used to define its cash flows?
danlan2 I think only II is right.
noonah III is also right. It follows the broader definition of cash flows in the context of value appraisal of a business.
rhardin Quote from page 304 of the CFA Institute material: "Can the DDM be applied to non-dividend-paying shares? In theory it can, as is illustrated later, but in practice it generally is not." So my take away is yes, it CAN, though probably shouldn't.
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Craig Baugh

Craig Baugh

Learning Outcome Statements

calculate and interpret the value of a common stock using the dividend discount model (DDM) for single and multiple holding periods;

CFA® 2025 Level II Curriculum, Volume 3, Module 21.