Sam's Fine Garments sells jackets and sports coats in suburban malls throughout the country. Business has been good, as indicated by the six-year growth in earnings per share. The earnings have grown from $1.00 to $1.87.

a. Determine the compound annual rate of growth in earnings (n = 6).

b. Based on the growth rate determined in part a , project earnings for next year (E₁). Round to two places to the right of the decimal point.

c. Assume the dividend payout ratio is 40 percent. Compute D_1• Round to two places to the right of the decimal point.

d. The current price of the stock is $15. Using the growth rate (g) from part a and D₁ from part c, compute K_e.

e. If the flotation cost is $1.75, compute the cost of new common stock (K_n).