Javits and Sons’ common stock currently trades at $49 per share. It is expected to pay an annual dividend of $1.15 a share at the end of the year, and the constant growth rate is 4 percent 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 12.5 percent flotation cost. What would the cost of equity from new stock be?