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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

COST OF COMMON EQUITY The Bouchard Company's EPS was $6.50 in 2018, up from $4.42 in 2013. The company pays out 40% of its earnings as dividends, and its common stock sells for $36.00.

  1. a. Calculate the past growth rate in earnings. (Hint: This is a 5-year growth period.)
  2. b. The last dividend was D0 = 0.4($6.50) = $2.60. Calculate the next expected dividend, D1, assuming that the past growth rate continues.
  3. c. What is Bouchard's cost of retained earnings, rx?

a.

Summary Introduction

To Determine: The past growth rate in earnings.

Introduction: Retained earnings are the revenues or profits that an organization has produced to date, less any dividends or different appropriations paid to the investors. This sum is balanced at a point when there is an entry to the bookkeeping records that effects an income or cost account.

Explanation

Determine the growth rate in earnings

Using a excel spreadsheet and excel function =RATE, the growth rate in earnings is determined as 8.02%. There are 5 years from 2018 to 2013...

b.

Summary Introduction

To Determine: The next expected dividend.

c.

Summary Introduction

To Determine: The cost of retained earnings.

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