Cost of Equity with and without Flotation
Jarett & Sons's common stock currently trades at $27.00 a share. It is expected to pay an annual dividend of $2.00 a share at the end of the year (D1 = $2.00), and the constant growth rate is 4% a year.
a. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations._________ %
b. If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations. ___________%