- CFA Exams
- 2021 Level II
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation

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##### Learning Outcome Statements PDF Download

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; |

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