Question: Javits and Sons' common stock currently trades at $30 a share. It is expected to pay an yearly dividend of $3.00 a share at the end of the year (D1=$3.00), & the constant growth rate is 5% a year.
[A] Calculate the firm's cost of common equity if all of its equity comes from retained earnings?
[B] If the firm were to issue new stock, it would incur a 10% flotation cost. Determine the cost of equity from new stock?