Required returns are higher in FCFE discount models than they are in dividend discount models, since FCFE is more difficult to estimate.

Why?

Required returns are higher in FCFE discount models than they are in dividend discount models, since FCFE is more difficult to estimate.

Why?

Tthat’s an interesting statement.

Never encouter such one, May I know where does it come from?

My guess is, as the statement imply, the difference lies in the higher uncertainty coming from FCEE approach than dividend approach, therefore higher risk -> we gotta add a bit of risk premium to compensate for this uncertainty compared to the dividend discount.

Agree with maxmeomeo…

Since there is more uncertainity involved with FCFE compared to dividends… therefore higher required return…

Isn’t it because FCFE values from controling prespective, while DCF from non controlling.

Test ignore

ignore

this statement is false. required return for a common stock is completely independent of the valuation model used. in fact it is the exact same in both models and it is the stock’s required return on equity calculated using the capital asset pricing model

hope this helps!