Javits & Sons common stock currently trades at $24 a share. It is expected to pay an annual dividend of $2.50 a share at the end of the year (D1=$2.50), and the constant growth rate is 5% a year.
a. What is the company's cost of common equity if all of its equity comes from retained earnings?
b. If the company were to issue new stock, it would incur a 10% flotation cost. What would the cost of equity from new stock be?