The Shrieves Companys most recent EPS was $6.50; EPS was $4.42 five years ago. The company pays

Question:

The Shrieves Company’s most recent EPS was $6.50; EPS was $4.42 five years ago. The company pays out 40 percent of its earnings as dividends, and the stock sells for $36.

a. Calculate the past growth rate in earnings.

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

c. What is the cost of retained earnings, rs, for the Shrieves Company?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...