Radon Homes\'s current EPS is $6.25. It was $3.88 5 years ago. The company pays
ID: 2638326 • Letter: R
Question
Radon Homes's current EPS is $6.25. It was $3.88 5 years ago. The company pays out 55% of its earnings as dividends, and the stock sells for $34.
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 = 0.55($6.25) = $3.44). 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) 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 = 0.55($6.25) = $3.44). 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.
Growth rate = (Price Five years back / Current Price)^(1/number of years) - 1 Growth rate = (6.25 / 3.885) ^ (1/5) - 1 Growth rate = 9.98%Related Questions
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