Question

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 not round intermediate calculations. Round your answer to 2 decimal places.) c. Assume the dividend payout ratio is 30 percent. Compute D1. (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. The current price of the stock is $10. 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.)

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 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....

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 11-23 Weighted average cost of capital [LO11-1]
Given the following information:
Percent of capital structure:
Preferred stock
20
%
Common equity
60
Debt
20
Additional information:
Corporate tax rate
40
%
Dividend, preferred
$
11.00
Dividend, expected common
$
6.50
Price, preferred
$
107.00
Growth rate
9
%
Bond yield
8
%
Flotation cost, preferred
$
7.50
Price, common
$
91.00
Calculate the weighted average cost of capital for Digital
Processing Inc. (Do not round intermediate calculations.
Input your...

1. Banyan Co.’s common stock currently sells for $35.25 per
share. The growth rate is a constant 5%, and the company has an
expected dividend yield of 5%. The expected long-run dividend
payout ratio is 50%, and the expected return on equity (ROE) is
10.0%. New stock can be sold to the public at the current price,
but a flotation cost of 5% would be incurred. What would be the
cost of new equity? Do not round intermediate calculations. Round...

Jarett & Sons's
common stock currently trades at $37.00 a share. It is expected to
pay an annual dividend of $1.75 a share at the end of the year
(D1 = $1.75), and the constant growth rate is 5% a
year.
What is the company's
cost of common equity if all of its equity comes from retained
earnings? Do not round intermediate calculations. Round your answer
to two decimal places.
%
If the company issued
new stock, it would incur...

Jarett & Sons's common stock currently trades at $21.00 a
share. It is expected to pay an annual dividend of $2.50 a share at
the end of the year (D1 = $2.50), and the constant
growth rate is 3% a year.
What is the company's cost of common equity if all of its equity
comes from retained earnings? Do not round intermediate
calculations. Round your answer to two decimal places.
%
If the company issued new stock, it would incur...

arett & Sons's common stock currently trades at $26.00 a
share. It is expected to pay an annual dividend of $2.75 a share at
the end of the year (D1 = $2.75), and the constant
growth rate is 4% a year.
What is the company's cost of common equity if all of its equity
comes from retained earnings? Do not round intermediate
calculations. Round your answer to two decimal places.
%
If the company issued new stock, it would incur...

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