# Cost of Equity

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Problem 10-11. Cost of Equity Radon Homes'; current EPS is $6.03. It was $4.45 five years ago. The company pays out 50 percent of its earnings as dividends, and the stock sells for $40.

a. Calculate the past growth rate in earnings. (Hint: This is a 5-year growth period.) Round the answer to the nearest hundredth.

b. Calculate the next expected dividend per share, [ = 0.50($6.03) = $3.02]. Assume that the past growth rate will continue. Round the answer to the nearest hundredth.

c. What is the cost of equity, , for Radon Homes? Round the answer to the nearest hundredth

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#### Solution Preview

Problem 10-11. Cost of Equity Radon Homes'; current EPS is $6.03. It was $4.45 five years ago. The company pays out 50 percent of its earnings as dividends, and the stock sells for $40.

a. Calculate the past growth rate in earnings. (Hint: This is a ...

#### Solution Summary

The solution explains the cost of equity using the dividend discount model.