- CFA Exams
- CFA Exam: Level II 2021
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation
- Subject 1. Streams of expected cash flows
CFA Practice Question
If a company is in its growth phase and has large capital demand to fund its growth, ______ should NOT be used.
II. Free cash flow model.
III. Residual income model.
I. Dividend discount model.
II. Free cash flow model.
III. Residual income model.
Correct Answer: I and II only
Such a company typically doesn't pay dividends. In this case, DDM is not suitable to define a company's cash flows.
User Contributed Comments 1
| User | Comment |
|---|---|
| danlan2 | If a company is in its growth, its free cash flow is often negative. |