Question #121
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 48
Status: Unattempted
Correct Answer: A
Question
Which of the following is least likely a potential problem associated with the three-stage dividend discount model (DDM)? The:
Answer Choices:
A. beta in the stable period is too high, resulting in an extremely low stock value
B. high-growth and transitional periods are too long, resulting in an extremely high stock value
C. stable period payout ratio may be too high resulting in an extremely low value
Explanation
If the stable period payout ratio is too low it may result in an extremely low value because
the terminal value will be lower due to the smaller dividends being paid out.