(9-11) Radon Homes\'s current EPS is $6.14. It was $4.61 5 years ago. The compan
ID: 2645250 • Letter: #
Question
(9-11) Radon Homes's current EPS is $6.14. It was $4.61 5 years ago. The company pays out 45% of its earnings as dividends, and the stock sells for $37.
A. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places.
B.Calculate the next expected dividend per share, D1 (Hint: D0 = 0.45($6.14) = $2.76). Assume that the past growth rate will continue. Round your answer to the nearest cent.
C.What is Radon's cost of equity, rs? Round your answer to two decimal places.
Explanation / Answer
A> 4.61*(1+g)^5 =6.14 or g=(6.14/4.61)^(1/5)-1=0.059 or 5.9% B>D1=6.14*(1.059)*0.45 2.926 C>Cost of equity=Dividend/P=(6.14*0.45)/37 0.0747 or 7.47%
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