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).

b.Based on the growth rate determined in part a, project earnings for next year (E₁).

c. Assume the dividend payout ratio is 30 percent. Compute D₁.

d. The current price of the stock is $10. Using the growth rate (g) from part a and (D₁) from part c, compute K_e.

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.