Cost of common equity

[gmblng]

I am totally stuck. So thanks in advance to anyone who can provide assistance.

Here's the problem -

XYZ's earnings per share (EPS) was $6.50 in 2002 and $4.42 in 1997. XYZ pays out 40% of its earnings as dividends and stock sells for $36.00.
a. calculate past growth rate in earnings (5 year growth period)
b. what is the cost of retained earnings (Ks) for XYZ Co.?

I cannot begin to make out the book's examples.
Please help! :shock:

 

[Denis]

r = growth rate

4.42(1 + r)^5 = 6.50
(1 + r)^5 = 6.50 / 4.42
1 + r = (6.50 / 4.42)^(1/5)

Finish it?

 

[gmblng]

thanks! I'll finish it off.
What about retained earnings - do you have a basic equation for that?
THanks again!