Example 7

Finance Jan 13, 2021

Example 7.2 Valuing a Firm with Constant Dividend Growth (1 of 4) Problem • Consolidated Edison, Inc. (Con Ed) is a regulated utility company that services the New York City area. Suppose Con Ed plans to pay $2.30 per share in dividends in the coming year. If its equity cost of capital is 7% and dividends are expected to grow by 2% per year in the future, estimate the value of Con Ed's stock.

Expert Solution

According to the Constant dividend model, the given company will pay the dividends constantly until it dissolves.

Price of the stock = Next year dividend/ ( cost of equity-Growth)

=2.3/(7%-2%)

=2.3/0.05

Price= $46.00

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