Corralling the discounted cash-flow estimate of the dividend growth rate
Efforts to increase the precision of the discounted cash-flow (DCF) estimate of the cost of utility company's equity capital are ongoing. This article cites several methods which offer greater precision without being more complex than the standard DCF formula. The article informs the reader on two issues: it discusses the complementary relationships between the DCF cost of equity, the earnings-price ratio, and the earned rate of return with the objective of delimiting the DCF cost rate; and it presents alternative DCF estimates originating with the earnings-price ratio and the earned rate of return precisely adjusted for market-to-book ratios. Consideration of these matters can, in the author's view, help replace uninformed conventional wisdom with truly informed judgement on the subject of a utility's cost of equity capital. 18 references, 1 figure, 2 tables.
- Research Organization:
- Iowa State Commerce Commission, Des Moines
- OSTI ID:
- 6919980
- Journal Information:
- Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 113:11; ISSN PUFNA
- Country of Publication:
- United States
- Language:
- English
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