1. Costly Corporation is considering a new preferred stock issue. The preferred would have a par value of $500 with an annual dividend equal to 13.0% of par. The company believes that the market value of the stock would be $945.00 per share with flotation costs of $76.00 per share. The firm's marginal tax rate is 40%. What is the firm's cost of preferred stock?

	5.81%
	6.88%
	8.22%
	6.40%
	7.48%

2. Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $31.00 per share. The firm's dividend for next year is expected to be $5.30 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 14.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?

	25.29%
	24.10%
	26.88%
	28.27%
	25.34%