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.