-The firms marginal tax rate is 40%.

-The current price of Colemans 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

-The current price of the firms 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue.

-Colemans common stock is currently selling at $50 per share. Its last dividend (D₀) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Colemans beta is 1.2, the yield on Treasury bonds is 7%, and the market risk premium is estimated to be 6%. For the bond-yield-plus-risk-premium approach, the firm uses a four percentage-point risk premium.

-Up to $300,000 of new common stock can be sold at a flotation cost of 15%. Above $300,000, the flotation cost would rise to 25%.

-Colemans target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity.

-The firm is forecasting retained earnings of $300,000 for the coming year.

1. What is Colemans cost for up to $300,000 of newly issued common stock, r_e1? What happens to the cost of equity if Coleman sells more than $300,000 of new common stock?