Vance Communications wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $1.20 per share, and the current price of its common stock is $30 per share. The expected growth rate is 9%.

A) Compute the cost of retained earnings (Ke). Using this formula: Ke(Cost of common equity in the form of retained earnings).

= D1 / P0 + g

B) If a $2 floatation cost is involved, compute the cost of the new common stock (Kn). Use this formula:

= Ke= D1 / P0 + g

=Kn= D1 / Po - F + g