Problem 9-11 (Cost of Equity)

Cost of Equity Radon Homes' current EPS is $7.70. It was $3.52 5 years ago. The company pays out 30% 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.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the next expected dividend per share, D1. (Hint: Dc. = 0.30($7.70) = $2.31.) Assume that the past growth rate will continue. Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What is Radon's cost of equity, r5? Do not round intermediate calculations. Round your answer to two decimal places. %