I would just like to get some comments on the above subject. I always thought that when doing a Dividend Discount Model and Free Cash Flow to Equity model, you will be able to come out with the same valuation. Since clearly, your cash flows will be different between both methodologies (i.e., DDM would essentially be lower than FCFE, as the former takes out cash from tha latter), then the only way your present value can catch up is at the Terminal Value portion. If this is the case, you can either only adjust the required rate of return or the perpetual growth rate. For the required rate of return, I believe you are constrained in using the cost of equity for both approaches. This leaves you with tweaking the perpetual growth rate. So should I assume a higher perpetual growth rate for the DDM versus FCFE? Any thought on the thinking process is very much appreciated. Thank you in advance.
I have not read this yet in CFAI texts, just in case your question is coming from there. I am just writing what my thoughts are on this subject. You could have 2 objectives from using these various models, also including CAPM. i) Estimating Cost of Capital ii) Evaluating the Market Price As an internal person in that corporate, your objective would be to estimate Cost of Capital. And as an external Analyst, your objective would be to Evaluate a Price for that company’s stock, compare that to existing market price and issue buy/sell/hold signals. Now, as an internal person, you could use any method to calculate cost of equity. But that needs to consistent, documented and audited. As an external analyst, again you could choose any method for doing your stock price evaluation, as long as it convinces you as being most accurate and representative. Again, your due diligence needs to be documented along with all assumptions you made, for the purpose of backtracking and supporting your evaluation. What I feel is, there is NO NEED to reconcile results from various methods. As long as your arrive at a result with documented list of assumptions and methods for your audience, there is nothing more to be done than that. Just what I think about parity of these methods.
Also, which method is more relevant depends to a good extent on Company’s Dividend Policy. Dividend policy of the company determines what type of investors would be interested in its stock. For a company with a stable dividend policy, its market of investors would be income seekers with low marginal tax rates and institutional investors like pension funds and insurance companies. And more appropriate method to evaluate its price and its cost of equity would be DDM method. And for a company with growth perspective paying little or no dividends, will attract investors who are looking for capital gains. Such investors could be those having high marginal tax rates. Instead of DDM, CAPM or other methods would be more appropriate for evaluation of its market price and calculation of its cost of equity. So, what I am trying to say is, a lot depends upon company’s dividend policy, while deciding which evaluation method could be best. And there is NO NEED to reconcile results obtained from any other method. Again, these are just my thoughts and I have not read CFAI text yet. If CFAI text is saying differently, then all of above gets overruled of course 
Okay. Please let me know if ever you change your mind after reading the text. Though, this did not stem from the CFAI books, I was merely thinking about the theoretical aspect of valuation. For instance, the Residual Income valuation should exactly match the FCFF, if done properly. That I am sure of. I was just thinking that it should be the same case for the DDM and FCFE. Another example is that the FCFF should match FCFE, of course, assuming some appropriate modifications in the general fundamental assumptions.
This is a very good question that you have raised. All DCF valuations techniques should lead to similar results if used appropriately. I think it would be easier if you tried to compare FCFF and DDM so that changes in Debt does not create additional differences in cash flow. While I have not found the exact solution to your question yet, the following thoughts have come to my mind. 1. Firstly, there can be no difference in the discount rate for DDM and FCFE. For both cases, same cost of equity MUST be used. Off course this is my opinion only. 2. FCFF/FCFE valuations are in one sense a type of DDM. We are assuming that the Free Cash Flows are given out as Dividends. However, since we are giving out the free cash flow, we also assuming that there would be no future additional cash accumulation. This has other consequences, but instead of going into that I am inclined to agree with your view that terminal growth for DDM should be higher than terminal growth for FCFF/FCFE. I can think of an alternative way also that is also related to the cash accumulation concept, but thats going to take a huge lot of explanation and right now I am feeling lazy.
Yes, I will surely update the thread if I come across what academics has to say on this. Also I feel, there are 2 categories of calculations: 1) Ratios that are based on figures from Accounting Statements 2) Evaluations In the first category, It makes sense to reconcile various figures, to check validity of that calculation. But calculations in the second category accompany various assumptions and theories. It does not make sense to reconcile outputs between those various evaluation methods.