Microsoft Word - HW CH 10.docx

KEI's expected net income this year is $34,285.72; its established dividend payout ratio is 40%; its federal-plus-state tax rate is 35%; and investors expect future earnings and dividends to grow at a constant rate of 9%. KEI paid a dividend of $3.20 per share last year, and its stock currently sells for $54.00 per share. KEI can obtain new capital in the following ways:

• Preferred: New preferred stock with a dividend of $10.00 can be sold to the public at a price of $95.00 per share.
• Debt: Debt can be sold at an interest rate of 12%.