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 ) b Based on the growth rate determined in part a , project earnings for next year ( E 1 ) (Do not round intermediate calculations Round your answer to 2 decimal places ) c Assume the dividend payout ratio is 45 percent Compute D 1 (Do not round intermediate calculations Round your answer to 2 decimal places ) d The current price of the stock is $23 Using the growth rate ( g ) from part a and ( D 1 ) from part c , compute K e (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 ( K n ) using growth rate ( g ) from part a and dividend ( D 1 ) from part c (Do not round intermediate calculations Input your answer as a percent rounded to 2 decimal places )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 05, 2024

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

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.)

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 45 percent. Compute D₁. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. The current price of the stock is $23. Using the growth rate (g) from part a and (D₁) from part c, compute K_e. (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 (K_n) 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.)