Question: The Bouchard Companys current EPS is $6.50. It was $4.42 5 years ago. The company pays out 40 percent of its earnings as dividends, and

The Bouchard Company’s current EPS is $6.50. It was $4.42 5 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. (Hint: This is a 5-year growth period.)

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 equity, rs, for the Bouchard Company?

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