The Dividend Discount Model (DDM)cannot Be Used to Value the Stock

question 52

True/False

The dividend discount model (DDM)cannot be used to value the stock of a company that has never paid a dividend and does not expect to pay a dividend in the near term.

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Definitions:

Default Risk

The likelihood that a borrower will fail to meet the obligations of a debt agreement.

Financing Lease

A lease in which the lessee effectively acquires ownership of the leased asset. Also called a capital lease. Accounted for by showing the leased asset on the balance sheet offset by a liability representing the obligation to make future lease payments. Compare with Operating lease.

Balance Sheet

An accounting report displaying the financial condition of a business, including what it owns, owes, and the equity held by shareholders on a given date.

Leases

A contractual arrangement where a lessee (user) pays the lessor (owner) for the use of an asset for a specified period of time.