Reliable Electric is a regulated public utility and it is ex

Reliable Electric is a regulated public utility, and it is expected to provide steady dividend growth of 2% per year for the indefinite future. Its last dividend was $6 per share; the stock sold for $60 per share just after the dividend was paid. What is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Reliable Electric is a regulated public utility, and it is expected to provide steady dividend growth of 2% per year for the indefinite future. Its last dividend was $6 per share; the stock sold for $60 per share just after the dividend was paid. What is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Solution

Cost of equity ( r) D1÷P0+g Here, Stock price (P0) $                  60.00 Expected dividend (D1) $                    6.12 =6*(1+2%) Growth rate (g) 2.00% Cost of equity ( r) 12.20% 6.12÷60+2%