Ellington Electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D₁) of $3.50 per share, and the current price of its common stock is $72 per share. The expected growth rate is 5 percent. (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

a. Compute the cost of retained earnings (K_e).

Cost of retained earnings %

b. If a $3.0 flotation cost is involved, compute the cost of new common stock (K_n).

Cost of new common stock %