Foundations of Financial Management
Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 11, Problem 18P

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. 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 E 1 . Round to two places to the right of the decimal point.

c. Assume the dividend pay out ratio is 40 percent. Compute D 1 . 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 D 1 from part c, compute K e .

e. If the flotation cost is $3 .75, compute the cost of new common stock K n .

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Chapter 11 Solutions

Foundations of Financial Management

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