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Business has been good for Keystone Control Systems, as indicated by the thirteen-year growth in earnings per share. The earnings have grown from $1.00 to $2.41. |
| a. |
Determine the compound annual rate of growth in earnings (n = 13). (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 30 percent. Compute D1. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| D1 | $ |
| d. |
The current price of the stock is $22. 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..) |
| Ke | % |
| e. |
If the flotation cost is $3.00, 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.) |
| Kn |
%
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