Growth rates and common stock valuation. (LO11-3) Intermediate Problems 18. Business has been good for Keystone Control Systems, as indicated by the four-year growth in earnings per share. The earnings have grown from $1.00 to $1.63. a. 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 (E1). Round to two places to the right of the decimal point. c. Assume the dividend payout ratio is 40 percent. Compute D. 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 (D) from part c, compute Ke e. If the flotation cost is $3.75, compute the cost of new common stock (K). 22 Weighted average cost of canital page 366