Lexington Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 21%. The firm can issue the following securities to finance capital investments: Debt: Capital can be raised through bank loans at a pretax cost of 6.9%. Also, bonds can be issued at a pretax cost of 6.8%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $80. Flotation costs will be $3 per share. The recent common stock dividend was $4.05. Dividends are expected to grow at 9% in the future. What is the firm's cost of external equity ?

Lexington Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 21%. The firm can issue the following securities to finance capital investments: Debt: Capital can be raised through bank loans at a pretax cost of 6.9%. Also, bonds can be issued at a pretax cost of 6.8%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $80. Flotation costs will be $3 per share. The recent common stock dividend was $4.05. Dividends are expected to grow at 9% in the future. What is the firm's cost of external equity? SET YOUR CALCULATOR TO 4 DECIMAL PLACES AND ROUND TO 2 DECIMAL PLACES AT THE END. DO NOT ENTER THE % SIGN. IF YOUR ANSWER IS 7.7011%, FOR EXAMPLE, ENTER 7.70