Problem 9-11 Cost of Equity

Radon Homes' current EPS is $7.39. It was $3.61 5 years ago. The company pays out 55% of its earnings as dividends, and the stock sells for $30.

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. %

Calculate the next expected dividend per share, D₁. (Hint: D₀ = 0.55($7.39) = $4.06.) Assume that the past growth rate will continue. Do not round intermediate calculations. Round your answer to the nearest cent. $

What is Radon's cost of equity, r_s? Do not round intermediate calculations. Round your answer to two decimal places. %