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Unformatted text preview: 11 (Damodaran, 2012) Background:
Population and power usage have leveled oﬀ.
Regulatory authorities restrict price increases to about the
Stable funding for decades.
Customers like dividends and Con Ed pays as much as
possible. Equities I: R. J. Hawkins Econ 136: Financial Economics 8/ 20 Gordon Growth Model Example: Con Ed
Consolidated Edison (Con Ed) in May 2011 (Damodaran, 2012) Background Information from 2010
Earnings per share were $3.47.
Dividends per share were $2.22.
The β of Con Ed was 0.80.
Use CAPM for cost of equity capital
The risk-free rate was 3.5%
The β for Con Ed was 0.8.
The market equity risk premium was 5%.
E ( ri ) = rf + β [ E ( rm ) − rf ] E (rCon Ed ) = 3.5% + 0.8 [5%] = 7.5% Equities I: R. J. Hawkins Econ 136: Financial Economics 9/ 20 Gordon Growth Model Example: Con Ed
Consolidated Edison (Con Ed) in May 2011 (Damodaran, 2012) Assume the following in perpetuity
An expected ROE of 9.79%.
An expected payout ratio of 64% (= $2.22 / $3.47 )
An expected retention rate of 36% (= 1 - 0.64).
An expected growth rate of 3.52% (= 0....
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- Fall '08