Here is the condensed 2021 balance sheet for Skye Computer Company (in thousands of dollars):

Skye Computer Company balance sheet ($ 000s)

2018

Current assets

$ 2,000

Net fixed assets

$ 3,000

Total assets

$ 5,000

Accounts payable and accruals

$ 900

Short-term debt

$ 100

Long-term debt

$ 1,100

Preferred stock (10,000 shares)

$ 250

Common stock (50,000 shares)

$ 1,300

Retained earnings

$ 1,350

Total common equity

$ 2,650

Total liabilities and equity

$ 5,000

Skyes earnings per share last year were $3.20. The common stock sells for $55.00, last years dividend ( D0 ) was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30.00 per share. The firms before-tax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals $1.2 million. CAPM is 13.58%

a) What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r e and r s as determined by the DCF method, and add that differential to the CAPM value for rs .)