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Cost of Equity Radon Homes' current EPS is $6.00. It was $4.71 5 years ago. The company pays out 60% of its earnings as dividends,

Cost of Equity

Radon Homes' current EPS is $6.00. It was $4.71 5 years ago. The company pays out 60% of its earnings as dividends, and the stock sells for $32.

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

2. Calculate the next expected dividend per share, D1. (Hint: D0 = 0.60($6.00) = $3.60.) Assume that the past growth rate will continue.

$ 3.77

3. What is Radon's cost of equity, rs?

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