- (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?
- 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?