- CFA Exams
- 2025 Level II
- Topic 5. Equity Valuation
- Learning Module 21. Discounted Dividend Valuation
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Learning Outcome Statements PDF Download
| 1. Streams of Expected Cash Flows calculate and interpret the value of a common stock using the dividend discount model (DDM) for single and multiple holding periods; | |
| 2. The Dividend Discount Model calculate the value of a common stock using the Gordon growth model and explain the model's underlying assumptions; calculate the value of non-callable fixed-rate perpetual preferred stock; calculate and interpret the implied growth rate of dividends using the Gordon growth model and current stock price; describe strengths and limitations of the Gordon growth model and justify its selection to value a company's common shares; | |
| 3. The Gordon Growth Model calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-to-earnings ratio (P/E) related to PVGO; | |
| 4. The Present Value of Growth Opportunities calculate and interpret the justified leading and trailing P/Es using the Gordon growth model; | |
| 5. Gordon Growth Model and the P/E Ratio explain the growth phase, transitional phase, and maturity phase of a business; | |
| 6. The Growth Phase, Transitional Phase, and Maturity Phase of a Business explain the assumptions and justify the selection of the two-stage DDM, the H-model, the three-stage DDM, or spreadsheet modeling to value a company's common shares; describe terminal value and explain alternative approaches to determining the terminal value in a DDM; calculate and interpret the value of common shares using the two-stage DDM, the H-model, and the three-stage DDM; explain the use of spreadsheet modeling to forecast dividends and to value common shares; evaluate whether a stock is overvalued, fairly valued, or undervalued by the market based on a DDM estimate of value. | |
| 7. Multistage Dividend Discount Models estimate a required return based on any DDM, including the Gordon growth model and the H-model; | |
| 8. Estimating and Calculating the Implied Expected Rate of Return calculate and interpret the sustainable growth rate of a company and demonstrate the use of DuPont analysis to estimate a company's sustainable growth rate; | |
| 9. Sustainable Growth Rate compare the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) approaches to valuation; explain the ownership perspective implicit in the FCFE approach; |
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