Question

# Business has been good for Keystone Control Systems, as indicated by the ten-year growth in earnings...

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 to 2 decimal places.)

c. Assume the dividend payout ratio is 50 percent. Compute D1. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. The current price of the stock is \$24. Using the growth rate (g) from part a and (D1) from part c, compute Ke. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

e. If the flotation cost is \$2.50, compute the cost of new common stock (Kn) 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.)