Radon Homes' current EPS is $6.50. It was $4.42 5 years ago

10-11 Radon Homes' current EPS is $6.50. It was $4.42 5 years ago. The company pays out 40% of its earnings as dividends, and stock sells for $36.

a) Calculate the past growth rate in earnings. (Hint: This is a 5-year growth period.)

b) Calculate the next expected dividend per share, D1 [D0 = 0.4($6.50) = $2.60].

Assume that the past growth rate will continue.

c) What is the cost of equity, rs, for Radon Homes?

 

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