Determine the past growth rate earnings

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Reference no: EM1315822

Computation of Stock Price with Growth rate.

Radon Homes' current EPS is $6.50. It was $4.42 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $36.

1. Calculate the past growth rate earnings. (Hint: this is a 5 year growth period.)

2. Calculate the next expected dividend per share, D1 [D0=0.4($6.50) =$2.60]. Assume that the past growth rate will continue.

3. What is the cost of equity is, for Random Homes?

Reference no: EM1315822

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