Lesson Overview
Build a method-selection grid so valuation prompts stop feeling arbitrary.
Level I questions are three-choice multiple choice and are built to reward fast recognition of the relevant rule, relationship, or calculation path. For this lesson, the job is to turn the topic into a repeatable exam move rather than another note to reread.
Mental Model
Prompt clues flow into model panels for dividends, free cash flow, multiples, and residual income.
In the Above MPS system, this sits in Valuation: Focus the method. Use that shape as the memory hook, then connect it to the precise facts in the question stem.
Exam Playbook
- Name the topic before calculating. Decide whether the stem is asking for a definition, direction of effect, classification, or numerical result.
- Apply the rule that changes the answer. Ignore details that do not affect the relationship being tested.
- Check the answer against the common trap. If the tempting choice matches one of the traps below, slow down before locking it in.
High-Yield Map
- Stable dividends point toward dividend discount models.
- Cash-flow availability and control perspective matter for FCFE/FCFF.
- Multiples are easy to use but sensitive to comparability.
Common Traps
- Using a dividend model when dividends do not reflect capacity.
- Ignoring whether the model is equity or firm value.
- Treating a low multiple as automatically undervalued.
Repair Drills
- Read 12 valuation prompts and select the model before calculating.
- Write the key input risk for each selected model.