1. A company's perpetual preferred stock currently sells for $127.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred incur a flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock?

2. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D₁ = $1.45; P₀ = $44.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?