Pharmaceuticals is a new company that will manufacture and deliver generic drugs to the residents of Hoboken at a subsidized price. They need to raise $10,000,000 in order to build their new manufacturing plant and distribution center. The Pharmacy Depots target capital structure calls for a debt ratio of 50%. Therefore, $5 million needs to be financed from equity from the following sources:

The following details the financial data for both the common stock and preferred stock options:

Using the following 4 steps, calculate the cost of equity required to finance this new venture:

1. Cost of retained earnings 2. Flotation costs for common stock

3. Flotation costs for preferred stock

4. Cost of Equity

Sourcess Retained earnings New Common Stock Preferred Stock Amount $2,000,000 $2,000,000 $1,000,000