7. The cost of new common stock

A firm will never have to take flotation costs into account when calculating the cost of raising capital from

retained earning

new common stock

.

White Lion Homebuilders has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $2.03 at the end of next year. The companys earnings and dividends growth rate are expected to grow at the constant rate of 8.70% into the foreseeable future. If White Lion expects to incur flotation costs of 6.50% of the value of its newly-raised equity funds, then the flotation-adjusted (net) cost of its new common stock (rounded to two decimal places) should be

14.79%

15.21%

12.17%

12.93%

.