In Kaplan schweser SS 13 Reading 39, the problem on valuing a REIT (Page 57) the following information is given
Estimated 12 months cash net operating income {NOI) - $80 Funds from operations {FFO) - $70 Cash and equivalents - $65 Accounts receivable - $35 Debt and other liabilities - $400 Non-cash rents - $5 Recurring maintenance-type capital expenditures - $15 Shares outstanding - 1 0 million shares Expected annual dividend next year {2014) - $5.00 Dividend growth rate in 2015 and 2016 - 2% Dividend growth rate {from 2017 into perpetuity) - 1% Assumed cap rate - 8% Office subsector average P/FFO multiple - 10x Office subsector average P/AFFO multiple - 14x Crabtree’s applicable cost of equity capital - 9% Risk free rate - 2% In the solution given in page 58, why while discounting the dividend of $5.25 in 2017 (which has grown @ 1%), r-g is 9%-2%? Shouldnt it be discounted by 9%-1% becoz the constant growth is 1% from 2017? Similar problem is there in the end of the chapter question in page 68. Please look into the respective page numbers and clarify. An early response would be appreciated.