- CFA Exams
- Dec. 2020 Level 2
- Study Session 10. Equity Valuation II
- Reading 27. Discounted Dividend Valuation

### Reading 27. Discounted Dividend Valuation

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### Learning Outcome Statements

Reading 27. Discounted Dividend Valuation | |
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1. Streams of expected cash flowsa. compare dividends, free cash flow, and residual income as inputs to discounted cash flow models and identify investment situations for which each measure is suitable; | |

2. The dividend discount modelb. calculate and interpret the value of a common stock using the dividend discount model (DDM) for single and multiple holding periods;
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3. The Gordon growth modelc. calculate the value of a common stock using the Gordon growth model and explain the model's underlying assumptions;d. calculate and interpret the implied growth rate of dividends using the Gordon growth model and current stock price;
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4. The present value of growth opportunitiese. 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;
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5. Gordon growth model and the P/E ratioe. 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;
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6. Strengths and limitations of the Gordon growth modelh. describe strengths and limitations of the Gordon growth model and justify its selection to value a company's common shares; | |

7. The growth phase, transitional phase, and maturity phase of a businessj. explain the growth phase, transitional phase, and maturity phase of a business; | |

8. Multistage dividend discount modelsi. 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;k. describe terminal value and explain alternative approaches to determining the terminal value in a DDM; l. calculate and interpret the value of common shares using the two-stage DDM, the H-model, and the three-stage DDM;
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9. Estimating and calculating the implied expected rate of returnm. estimate a required return based on any DDM, including the Gordon growth model and the H-model; | |

10. Strengths and limitations of multistage DDMsm. estimate a required return based on any DDM, including the Gordon growth model and the H-model; | |

11. Sustainable growth rateo. 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; | |

12. Using the DuPont model to estimate the return on equityo. 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; |