Cost of Equity

Radon Homes' current EPS is $6.53. It was $3.70 5 years ago. The company pays out 60% of its earnings as dividends, and the stock sells for $40.

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

a. ___________%

b. Calculate thenextexpected dividend per share, D1(Hint:D0= 0.60($6.53) = $3.92). Assume that the past growth rate will continue. Round your answer to the nearest cent.

b. $___________

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

c. ___________%