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 (E₁).(Do not round intermediate calculations. Round your answer to 2 decimal places.)
E1______________

c. Assume the dividend payout ratio is 45 percent. Compute D₁. (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 D₁ 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 (g) from part a and dividend (D₁) from part c. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  

Kn______________________%

Answer 1