ABC, Inc used to pay dividends but due to recent economic conditions, they stopp

Question

ABC, Inc used to pay dividends but due to recent economic conditions, they stopped paying dividends and will only start paying them again when the economy gets better (it is not certain when the company will be able to start paying the dividend again). To value stock price of ABC, what valuation model should an analyst use? 1) Dividend Discount Model -2 stage model 2) None of the above 3) Dividend Discount Model -Gordon model 4) Dividend Discount Model - H model 5) Dividend Discount Model-3 stage model Next Pas Page 6 of 20 d- 3 5 6 7 8 9 0 W E R T Y U O P

Explanation / Answer

It should be either option 2 or 5 beacause 3 stage dividend discount model is the best among dividend discount model and the sudden event of no dividend can be seen as large decline in dividend payments

Otherwise best model to value firm is Free Cash Flow model.

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