Cost of Equity

Radon Homes's current EPS is $7.00. It was $4.41 5 years ago. The company pays out 60% of its earnings as dividends, and the stock sells for $31.

1. Calculate the historical growth rate in earnings. Round your answer to two decimal places. (Hint: This is a 5-year growth period.) %
2. Calculate the next expected dividend per share, D₁ Assume that the past growth rate will continue. Round your answer to the nearest cent. (Hint: D₀ = 0.60($7.00) = $4.20). $
3. What is Radon's cost of equity, r_s? Round your answer to two decimal places.