Keaton Inc. has come out with a new and improved product, and is expected to have an EPS of $4.2 and an ROE of 20%. It will maintain a plowback ratio of 35%. Investors expect a 12% rate of return on the stock. Assuming Keaton's current value is measured with the constant growth DDM, compute the present value of growth opportunities for Keaton.

*Round your answer to TWO decimal places.

From the earlier problem with Keaton, suppose the present value of growth opportunities = 0. If everything else remains constant, find the cost of equity for Keaton and explain why.