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problem: Radon Homes' current EPS is $6.50. It was $4.42 5 years ago. The firm pays out 40 percent of its earnings as dividends, & the stock sells for dollar 36.

Compute the past growth rate earnings. [Suggestion: this is a five year growth period.]

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

find out the cost of equity for Random Homes?

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