Problem 9-11 Cost of Equity

Radon Homes's current EPS is $7.41. It was $4.61 5 years ago. The company pays out 55% of its earnings as dividends, and the stock sells for $34.

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

Calculate the next expected dividend per share, D1 (Hint: D0 = 0.55($7.41) = $4.08). Assume that the past growth rate will continue. Round your answer to the nearest cent. $

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