6. Flotation costs and the costs of new debt and equity capital Read each of the following statements, and indicate whether each statement is true or false. Statement True False The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of the new shares is based on the value of the firm's share price net of its flotation cost, while the cost of a firm's retained earnings is based solely on the share's expected future cash flows, its current market price, and the expected rate of growth of the firm's earnings and the share's dividends. One disadvantage of a CAPM-based estimate of a cost of new or existing equity is that it is impossible to incorporate flotation costs into the estmate. One reason that flotation costs associated with the sale of new equity is significantly greater than those associated with the sale of new debt is the difference in number and characteristics of the purchasers of the new securities. White Lion Homebuilders has a current stock price of $35 per share, and is expected to pay a per-share dividend of $3.20 at the end of next year, The company's earnings and dividends growth rate are expected to grow at a constant rate of 3.50% into the foreseeable future. If Alpha Moose expects to incue flotation costs of 5.20% of the value of its newly-raised equity funds, then the fiotation-adjusted (net) cost of its new common stock (founded to two decimal places) should be