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Basic Question 8 of 16
The constant-growth dividend discount model would typically be most appropriate in valuing the stock of a ______.
B. rapidly growing company
C. moderate-growth, "mature" company
D. company with valuable assets not yet generating profits
A. new venture expected to retain all earnings for several years
B. rapidly growing company
C. moderate-growth, "mature" company
D. company with valuable assets not yet generating profits
User Contributed Comments 5
| User | Comment |
|---|---|
| cong | Because high growth rate (above requried return) cannot be sustained forever, which violates the assumption of Gordon's model. |
| tochiejehu | YES DATS RYTE CONG |
| praj24 | Ref! we just need some consistency up in here! - constant growth rate = C (satisfies the criteria) Blame it on Caffeine... ayyy that begins with a C (losing my mind) |
| khalifa92 | for growing companies, we use three-stage DDM |
| walterli | constant growth company ?? |
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Barnes
Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2025 Level I Curriculum, Volume 3, Module 8.