Browning Co. expects to earn $3.50 per share during the current year, its expected payout ratio is 40%, its expected constant dividend growth rate is 4.0%, and its common stock currently sells for $40.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would the cost of equity from new common stock be?
a. 8.12%
b. 7.89%
c. 7.70%
d. 7.56%
e. 7.99%