Question #119
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 48
Status: Unattempted
Correct Answer: A
Question
One of the limitations of the dividend discount models (DDMs) is that they:
Answer Choices:
A. are very sensitive to growth and required return assumptions
B. are conceptually difficult
C. can only be used for companies that are experiencing stable growth
Explanation
DDMs are very sensitive to the growth and required return assumptions, and it is often
wise to interpret the value as a range rather than a precise dollar amount. There are
versions of DDM models that can be applied to companies transitioning from rapid growth
to moderate growth, etc.