Cost of Equity
Radon Homes's current EPS is $7.09. It was $3.51 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $40.
Calculate the historical growth rate in earnings. Round your answer to two decimal places. (Hint: This is a 5-year growth period.)
%
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 = 0.40($7.09) = $2.84).
$
What is Radon's cost of equity, rs? Round your answer to two decimal places.
%