CFA Practice Question

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CFA Practice Question

Which of the following statements regarding the Gordon Growth Model is false?

A. Calculated values are very sensitive to the growth and required return assumptions.
B. It cannot be applied to valuation of non-dividend-paying companies or companies with erratic growth pattern.
C. It does not define simple and easy-to-use relationships among required rate of return, growth, payout ratio and value.
Correct Answer: C

GGM features simplicity and clarity. It provides a simple relationship between the value and the underlying fundamentals such as growth, required rate of return and payout ratio.

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