Problem 10-4 Cost of Equity with and without Flotation

Jarett & Sons's common stock currently trades at $40.00 a share. It is expected to pay an annual dividend of $1.75 a share at the end of the year (D₁ = $1.75), and the constant growth rate is 7% a year.

What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations. %

If the company issued new stock, it would incur a 18% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations. %