1. Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 12%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 12.60%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

2. Jarett & Sons' common stock currently trades at $34.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D₁ = $1.25), and the constant growth rate is 6% a year.

What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.

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If the company issued new stock, it would incur a 12% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places.

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