The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 8% per year. Callahan's common stock currently sells for $21.75 per share; its last dividend was $2.00; and it will pay a $2.16 dividend at the end of the current year.

Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

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If the firm's beta is 1.7, the risk-free rate is 7%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.

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If the firm's bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be r_s? Use the judgmental risk premium of 4% in your calculations. Round your answer to two decimal places.

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If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

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If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows:

The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment.

Quantitative Problem: Barton Industries expects next year's annual dividend, D₁, to be $2.40 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P₀, is $20.00. If it needs to issue new common stock, the firm will encounter a 4.6% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.

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What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places.

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