The Bouchard Company\'s EPS was $5.39 in 2016, up from $3.08 in 2011. The compan

ID: 2791669 • Letter: T

Question

The Bouchard Company's EPS was $5.39 in 2016, up from $3.08 in 2011. The company pays out 40% of its earnings as dividends, and its common stock sells for $35.

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

The last dividend was D0 = 0.40($5.39) = $2.16. Calculate the next expected dividend, D1, assuming that the past growth rate continues. Do not round off intermediate calculations. Round your answer to the nearest cent. $

What is Bouchard's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations. %

Explanation / Answer

rate

(fv/pv)^(1/nper) - 1

(5.39/3.08)^(1/5)-1

1.75^(1/5) -1

1.118427-1

11.84%

Expected dividend

previous dividend*(1+growth rate)

2.16*1.1184

2.42

cost of retained earnings

(expected dividend/current market price)+growth rate

(2.42/35)+.1184

18.75%