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Radon Homes's current EPS is $7.95. It was $3.70 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $35.
1. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places.
2. Calculate the next expected dividend per share, D1 (Hint: D0 = 0.40($7.95) = $3.18). Assume that the past growth rate will continue. Round your answer to the nearest cent.
3. What is Radon's cost of equity, rs? Round your answer to two decimal places. %
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