Purchase Solution

# Historical Growth Rate of Earnings

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Problem 9-11. Cost of Equity.

Radon Homes' current EPS is \$7.06. It was \$4.68 five years ago. The company pays out 50% of its earnings as dividends, and the stock sells for \$31.

a. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places.

b. Calculate the next expected dividend per share, D1 (Hint: D0 = 0.50(\$7.06) = \$3.53). Assume that the past growth rate will continue. Round your answer to the nearest cent.

##### Solution Summary

Calculates cost of equity.

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Problem 9-11. Cost of Equity

Radon Homes' current EPS is \$7.06. It was \$4.68 five years ago. The company pays out 50% of its earnings as dividends, and the stock sells for \$31.

a. Calculate the historical growth ...

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