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Basic Question 0 of 6
If a company is not dividend-paying, we can use ______ to define its cash flows.
II. free cash flow model
III. residual income model
I. dividend discount model
II. free cash flow model
III. residual income model
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. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
explain the selection of an optimal portfolio, given an investor's utility (or risk aversion) and the capital allocation line
CFA® 2025 Level I Curriculum, Volume 2, Module 1.