# Question

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).

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).

## Answer to relevant Questions

Global Technology’s capital structure is as follows:Debt ............ 35%Preferred stock ........ 15Common equity ....... 50The aftertax cost of debt is 6.5 percent; the cost of preferred stock is 10 percent; and the cost ...Brook’s Window Shields Inc. is trying to calculate its cost of capital for use in a capital budgeting decision. Mr. Glass, the vice-president of finance, has given you the following information and has asked you to compute ...Medical Research Corporation is expanding its research and production capacity to introduce a new line of products. Current plans call for the expenditure of $100 million on four projects of equal size ($25 million each), ...How does the stockholder, in general, feel about the relevance of dividends?Ralston Gourmet Foods Inc. earned $360 million last year and retained $252 million. What is the payout ratio?Post your question

0