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    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.

    c. What is Radon Homes' cost of equity, rs? Round your answer to two decimal places.

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    Solution Preview

    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 ...

    Solution Summary

    Calculates cost of equity.

    $2.19