Jarett & Sons's common stock currently trades at $21.00 a share. It is expected to pay an annual dividend of $1.00 a share at the end of the year (D₁ = $1.00), 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?

2. If the company issued new stock, it would incur a 9% flotation cost. What would be the cost of equity from new stock?