The management of the SummerIsAlmostHere Company needs to estimate the cost of its equity financing. The latest financial data is as follows: stock price of $25.00; next expected dividend is $1.25 per share; constant expected growth rate in dividends and earnings of 5%; beta of the stock is 1.2; current market rate is 9%; risk-free rate of return is 3%.
a) All the above information, what is a good estimate of the cost of equity?
b) If flotation costs of issuing new common stock is 15% of the stock price, what is the cost of new common stock?