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29 July, 12:23

The Bouchard Company's EPS was $6.14 in 2016, up from $3.87 in 2011. The company pays out 60% of its earnings as dividends, and its common stock sells for $36. Calculate the past growth rate in earnings. (Hint: This is a 5-year growth period.) Round your answer to two decimal places. % The last dividend was D0 = 0.60 ($6.14) = $3.68. Calculate the next expected dividend, D1, assuming that the past growth rate continues. $ What is Bouchard's cost of retained earnings, rs?

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  1. 29 July, 12:45
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    Answer and Explanation:

    The computation is shown below

    1. Past Growth rate in earnings is

    = ($6.14 : $3.87 ^ (1 : 5) - 1

    = 1.5866 ^ (1 : 5) - 1

    = 1.0967 - 1

    = 9.67%

    b. The next year dividend is shown below:

    Current year dividend = $3.68

    So,

    Expected dividend next year is

    = $3.68 * (1 + 9.67%)

    = $4.04

    c. Now

    Cost of retained earnings = (Expected dividend : Current stock Price) + Growth rate

    = ($4.04 : $36) + 9.67%

    = 20.89%

    We simply applied the above formulas
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