Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firms stock is currently selling for $70.67. The firm just recently paid a dividend of $4. The firm has been increasing dividends regularly. Five years ago, the dividend was just $2.99.

After underpricing and flotation costs, the firm expects to net $69 per share on a new issue.

1. Determine average annual dividend growth rate over the past 5 years. Report your answer to the nearest whole percentage. Using that growth rate, what dividend would you expect the company to pay next year?

2. Determine the net proceeds, N_n, that the firm will actually receive.

3. Using the constant-growth valuation model, determine the required return on the companys stock, r_s, which should equal the cost of retained earnings, r_r.

4. Using the constant-growth valuation model, determine the cost of new common stock, r_n.