Bania Corporation's target capital structure consists of 40% debt and 60% common equity. Assume that the firm has no retained earnings to fund it's capital budget in the coming year. Bania's last annual dividend was $1.75, which is expected to grow at a constant rate of 5%; and their current stock price is $21.88. Bania can raise all the debt financing it needs at 11%. If Bania issues new common stock, a 20% flotation cost will be incurred. The firm's tax rate is 25%. 1. What is the component cost of the equity raised by selling new common stock? 2. What is Bania's cost of capital assuming they will have to issue new common stock?