CFA Practice Question

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CFA Practice Question

If a company is in its growth phase and has large capital demand to fund its growth, ______ should NOT be used.

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.
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