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CAPM or DDM (div discount model). Which method is preferable for ROR on equity?

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My manager has asked me to calculate the required return on our company's equity, using either CAPM or DDM (Dividend Discount Model). Which of these two models should I use, and why? I need to be able to explain the why of my choice.

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Solution Summary

In a 245 word solution, the response explains several methods and then states an opinion backed up with reasons.

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In my opinion CAPM is the best model to calculate the required return on our company's equity mainly due to its application simplicity and popularity.

First of all, CAPM is by far the most used method to calculate required return. Approximately 73% of the companies estimate their cost of capital with this method.

The second most popular ...

Solution provided by:
Umut Oltulu, MBA
Education
  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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