A firm has common stock with a market price of $50 per share and an expected dividend of $2.78 per share at the end of the coming year. The dividends are expected to grow at a constant rate of 5% per year. A new issue of stock is expected to be sold for $48 after $1 per share underpricing and $1 per share flotation costs are deducted from the market price. The cost of this new issue of common stock is:
5.8 percent.
7.7 percent.
10.8 percent.
12.8 percent.