1) Harry Davis estimates that if it issues new common stock, the flotation cost will be 15%. Harry Davis incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued stock, taking into account the flotation cost?

2) Suppose Harry Davis issues 30-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. If flotation costs are 2%, what is the after-tax cost of debt for the new bond issue?

$50.00 $3.12 5.8% $3.30 Do- rsD rs = $3.30 Po $50.00 9 5.8%