COST OF COMMON EQUITY AAA Companys common stock currently trades at $25 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (i.e. D1=$1.25), and the constant growth rate on the dividends is 6% a year.

1) What is the companys cost of common equity?

2) If the company raises capital by issuing new stock, it would incur a 15% flotation cost (F=15%). What would be the cost of equity from new stock?