How do you find the rate of return on equity when you're looking at different financing options in a DCF. I know that the formula is net income/shareholder equity, but this isn't giving me different rates for the different financing options... Thanks for any input
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lol why are you looking at financing options in a DCF
DCF looks at unleveraged free cash flow (doesn't look at debt) not sure why you are talking about financing.
you probably doing it wrong. you need to change the capital structure then it will give you different ROE
this might make sense if a firm needed to meet covenants (i.e. ROE) a few years down the road yet also needs $$ to grow and wants to see how various financing can help (e.g. stock issuance would impact for sure)
DCF - Beta & Expected Return (Originally Posted: 06/19/2014)
Doing a DCF of a mature retail company and have a couple of questions if you guys could help me out. They involve inputs to the CAPM in computing WACC...
The company's beta is not publicly available via free, public sources and I was curious if it would be appropriate to use an average of its peer group's betas as a proxy?
What are you guys typically using for the proxy for the expected return of the stock market? I was going to use a three or five year arithmetic average of the S&P's returns, but it seems like that may be a bit biased upward due to the crazy returns the past couple of years...
Thank you to anyone who can provide some insight!
Rip it from research reports and / or spam the shit out of your banker buddies until they cave and send you some barra's beta numbers. Drop it in your model, foot note that bitch, hit F9 and go watch some soccer games at bar with your friends. Done.
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