Show the compound annual rate of growth in earnings.

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Reference no: EM1363892

. 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. Use Appendix A at the back of the text to 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 D1. 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 (D1) from part c, compute Ke.

E If the flotation cost is $3.75, compute the cost of new common stock (Kn).

Reference no: EM1363892

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