Investors expect to receive a dividend yield, y, plus a capital gain, g, for a total expected return. In , this expected return is also equal to the required return. It's easy to calculate the dividend yield; but because stock prices fluctuate, the yield varies from day to day, which leads to fluctuations in the DCF cost of equity. Also, it is difficult to determine the proper growth especially if past growth rates are not expected to continue in the future. However, we can use growth rates as projected by security analysts, who regularly forecast growth rates of earnings and dividends.
Which method should be used to estimate rs?
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Investors expect to receive a dividend yield, y, plus a capital gain, g, for a total expected return...
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