Javits & Son's common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D1=$3.00), 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 earning ?
b) If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock ?