Cost of Equity

Radon Homes's current EPS is $7.87. It was $4.33 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $33.

Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places.
Calculate the next expected dividend per share, D1 (Hint: D0 = 0.40($7.87) = $3.15). Assume that the past growth rate will continue. Round your answer to the nearest cent.
What is Radon's cost of equity, rs? Round your answer to two decimal places.

 

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