17. Business has been good for Keystone Control Systems, as indicated by the fouryear growth in earnings

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17. Business has been good for Keystone Control Systems, as indicated by the fouryear growth in earnings per share. The earnings have grown from $1.00 to $1.63.

a. Use Appendix A at the back of the text to determine the compound annual rate of growth in earnings (n = 4).

b. Based on the growth rate determined in part

a, project earnings for next year

(Ej). Round to two places to the right of the decimal points.

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

d. The current price of the stock is $50. Using the growth rate (g) from part a and (Di) from part

c, compute Kg.

e. If the flotation cost is $3.75, compute the cost of new common stock (Kn).

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Foundations Of Financial Management

ISBN: 9780073382388

13th Edition

Authors: Stanley B. Block, Geoffrey A. Hirt, Bartley R. Danielsen

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