Cost of Equity with and without Flotation

Javits & Sons' common stock currently trades at $40.00 a share. It is expected to pay an annual dividend of $1.50 a share at the end of the year (D1= $1.50), and the constant growth rate is 3% a year.

1. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places.

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1. If the company were to issue new stock, it would incur a 16% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places.

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