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Solving for the Cost of Equity

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Reliable Electric is a regulated public utility, and it is expected to provide a steady growth of dividends of 5 percent per year for the indefinite future. Its last dividend was $5/share; the stock sold for $60 per share just after the dividend was paid. What is the company's cost of equity?

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Solution Summary

This solution explains how to calculate the cost of equity in a clear and concise manner. The dividend discount model is used for solving and all associated variables are explained.

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Using the dividend discount model, the cost of equity is given as:
Cost of equity = D1/Mp + ...

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