Response to the following problem:
The Bouchard Company's current EPS is $6.50. It was $4.42 5 years ago. The company pays out 40 percent of its earnings as dividends, and the stock sells for $36.
a. Calculate the past growth rate in earnings. (Hint: This is a 5-year growth period.)
b. Calculate the next expected dividend per share, D1 [D0 0.4($6.50) $2.60]. Assume that the past growth rate will continue.
c. What is the cost of equity, rs, for the Bouchard Company?