25 Cost of new common stock A firm will never have to take flotation costs into account when calculating the cost of raising capital from True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. Pick A or B A- False: Flotation costs need to be taken into account when calculating the cost of issuing new common stock, but they do not need to be taken into account when raising capital from retained earnings. B- True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm's existing common equity, while the cost of new common stock is based on the value of the firm's share price net of its flotation cost. Cold Goose Metal Works Inc. is considering a one-year project that requires an initial investment of $550,000; however, in raising this capital, Cold Goose will incur an additional flotation cost of 2%. At the end of the year, the project is expected to produce a cash inflow of $825,000. The rate of return that Cold Goose expects to earn on the project after its flotation costs are taken into account is %. Cold Goose has a current stock price of $22.35 and is expected to pay a dividend of $2.03 at the end of next year. The company's growth rate is expected to remain constant at 6%. If the issue's flotation costs are expected to equal 2% of the funds raised, the flotation-cost-adjusted cost of the firm's new common stock is % Cold Goose's addition to earnings for this year is expected to be $420,000. Its target capital structure consists of 40% debt, 5% preferred stock, and 55% common stock. Cold Goose Metal Works Inc.'s retained earnings breakpoint is $ _(rounded to the nearest whole dollar)