Question: Javits & Sons common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $3.00 a share at the

Javits & Sons’ 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 earnings?

b. If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock?

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