(Cost of equity ) The common stock for the Bestsold Corporation sells for $62. If a new issue is sold, the flotation costs are estimated to be 9 percent. The company pays 70 percent of its earnings in dividends, and a $4.90 dividend was recently paid. Earnings per share 4 years ago were $5.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 4 years. The firm's marginal tax rate is 37 percent.

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Calculate the cost of (a ) internal common equity and (b ) external common equity.

a. What is the firm's cost of internal common equity? (The answer is not 16.68%)

b. What is the firm's cost of external common equity? (The answer is not 18.33%)