Fedland Inc. will issue new common stock to finance an expansion. The existing common stock just paid a $3.50 dividend, with dividends expected to grow at a constant rate of 5% indefinitely. The stock sells for $40.00 and flotation expenses of 4% of the selling price will be incurred on new shares. What is the cost of new common stock?

i. What is the appropriate mathematical model to solve the problem?

ii. Calculate the correct solution to the problem.