When doing discounted cash flow to value stocks, what percentage should you use as discounting factor?

Answer 1

While the person above me has the correct answer in the academic sense, its really a matter of judgment because there are many arguments about the effectiveness/accuracy of the CAPM. I think the best discount value to use is simply the annual return you would require given the company's business risk. Generally, I use 12%, unless I think the business is either very solid and stable (i.e., Coke or Johnson & Johnson) in which case I normally discount at about 10% or very risky (i.e. Google or Apple) in which case I normally discount at about 15%. While saying the discount factor is a matter of judgment doesn't really solve anything, I advise you to discount at whatever rate you are comfortable with. If you have a specific example you want to know about, add some info and I'll try to check back.
Hope this helps.

Answer 2

You don't discount cash flows to value stocks. You discount the dividend. For conservative valuation one uses the cost of equity. And sometimes less puritanicals and more management oriented investors use weighted average cost of capital since that is a meassure of managerial efficiency.

Answer 3

Depends on what you're discounting. If you're discounting the Free Cash Flow to the Firm (FCFF) then you use the weighted average cost of capital (WACC). If you're discounting Free Cash Flow to Equity, you would use the firm's cost of equity. You can derive cost of equity from CAPM.