5. 5: The Cost of Capltal Cost of New Common Stock If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approachns to use to account for fiotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the fim's hurdic rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: Coet of equity from new stock =r4=P1(17)D1+g The difference between the flotation-adfusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cont adjustment. Quantitative Problems Barton Industries expects next year's annual dividend, Di, to be $2.20 and it expects dividends to grow at a constant rate g = 4.3%. The firm's current common stock price, Poi, is $20.00. If it reeds to issue new common stock, the firm will encounter a 4.3% fotation cost, 8 . What is the flatation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Plound your answer to two decimat places. What is the cost of new common equify considering the estimate made from the three estimation methodologies? Do not round intermediate caiculations. Pound your answer to two decimal places