The Bouchard Company"s EPS was $6.50 in 2002 and $4.42 in 1997. 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?