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Determine the compound annual rate of growth in earnings

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Question - Sam's Fine Garments sells jackets and sports coats in suburban malls throughout the country. Business has been good, as indicated by the ten-year growth in earnings per share. The earnings have grown from $1.00 to $3.39. (Use a Financial calculator to arrive at the answers.)

a. Determine the compound annual rate of growth in earnings (n = 10).

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

c. Assume the dividend payout ratio is 35 percent. Compute D1.

d. The current price of the stock is $25. Using the growth rate (g) from part a and D1, from part c, compute Ke.

e. If the flotation cost is $2.50, compute the cost of new common stock (Kn).

Reference no: EM133149197

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