Alt Investments - Real Estate (reading 38 & 39)

CFA Level II Alternative Investments
#1
  1. (Ref. Reading 39, EoC # 4) When I use the dividend cash flow model, which discount rate do I use?

Question provides: dividend growth rate yrs 2 & 3: 4.5% perpetual growht rate: 4.0% Assumed cap rate: 6.5% Cost of equity: 8% (This was in the notes fine print so I didn’t see it)

The solutions used 8% to discount but according to the formula provided in reading 38:

Cap rate = Discount rate – growth rate

This discount rate should be 4.0% + 6.5% = 10.5%. How do I choose which one to use?

  1. How to calculate Funds From Operations (FFO)?

(From textbook) FFO = account net earnings excluding (1) depreciation, (2) deferred tax charges, (3) gains or losses

So add depreciation, add tax liability, subtract tax asset, subtract gains, add losses?

#2

Do I subtract or add deferred tax liability/asset?

#3

Hi
I have the same question regarding the cap rate. Did you find the answer please?