Radon Homes\'s current EPS is $7.54. It was $3.63 5 years ago. The company pays
ID: 2649292 • Letter: R
Question
Radon Homes's current EPS is $7.54. It was $3.63 5 years ago. The company pays out 55% of its earnings as dividends, and the stock sells for $37.
Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places.
%
Calculate the next expected dividend per share, D1 (Hint: D0 = 0.55($7.54) = $4.15). Assume that the past growth rate will continue. Round your answer to the nearest cent.
$
What is Radon's cost of equity, rs? Round your answer to two decimal places.
%
Explanation / Answer
1)Growth Rate =$7.54-$3.63/$3.63
= 1.077%
2) Next Dividend = $ 4.47
if growth rate remain same next EPS=($7.54+$ 1.077)*0.55
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