**NOTE: I PREVIOUSLY ASKED THIS QUESTION AND MOST OF THE ANSWERS GIVEN WERE WRONG**

Garden Depot has just paid an annual dividend of $3.5 per share. Analysts expect the firm's dividends to grow by 7% forever. Its stock price is $36.4 and its beta is 1. Its bonds have a yield to maturity of 5%, and the risk-premium of its stock over its bonds is 3%.

The risk-free rate is 4% and the expected return on the market portfolio is 6%.

The company is in the process of issuing new common stock, with flotation costs of 8% of the issue price.

Part 1 (SOLVED) What is the cost of equity from retained earnings according to the CAPM?

rs=rf+(rMrf) = 0.04+1(0.060.04) = 0.06

Part 2 What is the cost of equity from retained earnings according to the DCF approach? (Please keep 4 decimal places of your answer.)

Part 3 What is the cost of equity from retained earnings according to the bond yield plus risk premium approach? (keep to 4 decimals)

rs=Bond yield+Risk premium = 0.05+0.03 = 0.08

Part 4 What is your best guess for the cost of equity from retained earnings, using the midpoint of the range? (keep to 4 decimals)

Part 5 What is the cost of equity from new common stock, according to the DCF approach with flotation costs? (keep to 4 decimals)

Part 6 What should be the flotation cost adjustment? Use 5 decimal places for all input numbers in your calculation. (keep to 5 decimals)

Part 7 Adjust the flotation cost adjustment on top of the cost of equity from retained earnings, what is your best guess for the cost of equity from new common stock? (keep to 4 decimals)