7. Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 25%. The current stock price is P0 = $27.00. The last dividend was D0 = $3.50, and it is expected to grow at a 5% constant rate.

What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places.

rs = %

WACC = %

8.

Jarett & Sons' common stock currently trades at $34.00 a share. It is expected to pay an annual dividend of $2.50 a share at the end of the year (D₁ = $2.50), and the constant growth rate is 4% a year.

1. 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.

   %

2. If the company issued new stock, it would incur an 8% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places.

   %