Business has been good for Keystone Control Systems, as indicated by the six-year growth in earnings per share. The earnings have grown from $1.00 to $1.80.

Determine the compound annual rate of growth in earnings (n = 6)

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

Assume the dividend payout ratio is 20 percent. Compute D₁

The current price of the stock is $16. Using the growth rate (g) from part a and D₁ from part c, compute K_e.

If the flotation cost is $3.00, compute the cost of new common stock (K_n) using growth rate (g) from part a and dividend (D₁) from part c.