Question

Business has been good for Keystone Control Systems, as
indicated by the six-year growth in earnings per share. The
earnings have grown from $1.00 to $1.85.

**a.** Determine the compound annual rate of growth
in earnings (*n* = 6). **(Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
compound annual rate of growth____________%**

**b.** Based on the growth rate determined in part
*a*, project earnings for next year
(*E*_{1}).**(Do not round intermediate
calculations. Round your answer to 2 decimal places.)
E1______________**

**c.** Assume the dividend payout ratio is 45
percent. Compute *D*_{1}. **(Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
**

D1____________________

**d.** The current price of the stock is $23. Using
the growth rate (*g*) from part *a* and
*D*_{1} from part *c*, compute
*K*_{e}. **(Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places..)
**

Ke___________________%

**e.** If the flotation cost is $2.50, compute the
cost of new common stock (*K _{n}*) using growth rate
(

Kn______________________%

Answer #1

Business has been good for Keystone Control Systems, as
indicated by the eleven-year growth in earnings per share. The
earnings have grown from $1.00 to $1.71.
a. Determine the compound annual rate of growth in
earnings (n = 11). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
b. Based on the growth rate determined in part a,
project earnings for next year (E1).(Do
not round intermediate calculations. Round your answer to 2...

Business has been good for Keystone Control Systems, as
indicated by the ten-year growth in earnings per share. The
earnings have grown from $1.00 to $2.96.
a. Determine the compound annual rate of growth
in earnings (n = 10). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.)
b. Based on the growth rate determined in part
a, project earnings for next year
(E1). (Do not round intermediate
calculations. Round your answer...

Business has been good for Keystone Control Systems, as
indicated by the ten-year growth in earnings per share. The
earnings have grown from $1.00 to $4.56.
a. Determine the compound annual rate of growth in earnings (n =
10). (Do not round intermediate calculations. Input your answer as
a percent rounded to 2 decimal places.)
b. Based on the growth rate determined in part
a, project earnings for next year
(E1). (Do not round intermediate
calculations. Round your answer to...

Business has been good for Keystone Control Systems, as
indicated by the ten-year growth in earnings per share. The
earnings have grown from $1.00 to $3.84.
a. Determine the compound annual rate of growth
in earnings (n = 10)
b. Based on the growth rate determined in part
a, project earnings for next year
(E1). (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
c. Assume the dividend payout ratio is 50 percent.
Compute D1. (Do not...

Problem 11-18 Growth rates and common stock valuation [LO11-3]
Business has been good for Keystone Control Systems, as indicated
by the eleven-year growth in earnings per share. The earnings have
grown from $1.00 to $2.55. a. Determine the compound annual rate of
growth in earnings (n = 11). (Do not round intermediate
calculations. Input your answer as a percent rounded to 2 decimal
places.) b. Based on the growth rate determined in part a, project
earnings for next year (E1).(Do...

Compute Ke and Kn under
the following circumstances:
a. D1 = $6.60,
P0 = $76, g = 6%, F = $4.00.
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)Ke
Kn
b. D1 = $.35,
P0 = $36, g = 10%, F = $1.50.
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
Ke
Kn
c. E1 (earnings at the end of
period one) = $10, payout ratio equals 25 percent,
P0 =...

Compute the required values under the following circumstances:
(Do not round intermediate calculations. Round the final
answers to 2 decimal places.)
a. D1 = $4.60;
P0 = $60; g = 6%; F =
$4.00.
Ke
%
Kn
%
b. D1 = $0.25;
P0 = $20; g = 10%; F =
$1.50.
Ke
%
Kn
%
c. E1 (earnings at the end
of period one) = $6; payout ratio equals 30 percent;
P0 = $25; g = 4.5%; F =...

Compute
Ke and Kn
under the following circumstances:
a.
D1 = $5.00, P0 = $70,
g = 8%, F = $7.00. (Round your
intermediate and final answers to 2 decimal places.)
Ke:
Kn:
b.
D1 = $.22, P0 = $28,
g = 7%, F = $2.50. (Round your
intermediate and final answers to 2 decimal places.)
?Ke:
Kn:
c. E1 (earnings at the end of
period one) = $7, payout ratio equals 40 percent,
P0 = $30, g = 6.0%,...

Compute Ke and Kn under
the following circumstances:
c. E1 (earnings at the end of
period one) = $6, payout ratio equals 30 percent,
P0 = $42, g = 10.0%, F =
$3.50. (Do not round intermediate calculations. Round your
answers to 2 decimal places.)
d. D0 (dividend at the
beginning of the first period) = $4, growth rate for dividends and
earnings (g) = 5%, P0 = $68,
F = $5. (Do not round intermediate calculations.
Round your answers...

8
San Diego Gas and Electronic Company’s treasurer uses both the
capital asset pricing model and the dividend valuation model to
compute the cost of common equity (also referred to as the required
rate of return for common equity).
Assume: Rf = 6 % Km = 9 % β = 2.2 D1 = $ .70 P0 = $ 15 g = 6
%
a. Compute Ki (required rate of return on
common equity based on the capital asset pricing model)....

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