Your company's stock currently has a price of $$40$ per share and is expected to pay a year$-$end

dividend of $$1\mathrm{.}00$ per share $(D_1=$$$1\mathrm{.}00).$ The dividend is expected to grow at a constant rate of $6$

percent per year. The company has insufficient retained earnings to fund capital projects and must,

therefore, issue new common stock. The new stock has an estimated flotation cost of $$5$ per share.

Determine the company's cost of new equity capital.

$9\mathrm{.}13\%$

$8\mathrm{.}86\%$

$8\mathrm{.}59\%$

$9\mathrm{.}40\%$

$9\mathrm{.}67\%$