I understand from Reading #34 that for 3 stage FCFE valuation model, a combination of discount rates are being used to discount cashflows (“CFs”) during the transitional period. For example,
High-growth period: r=20%
Transitional period: r= 10%
Stable-growth period: r=5%
A combination of 20% and 10% will be used to discount CFs during the transitional period.
Question: Does this applies to 3-stages DDM too? I understand that usually a single discount rate will be given to discount each period dividend. But what if different discount rate is used for different stage? Must we use a combination of Stage 1 and Stage 2 discount rates to discount CFs in Stage 2?