Jarett & Sons' common stock currently trades at $22.00 a share. It is expected to pay an annual dividend of $2.75 a share at the end of the year (D₁ = $2.75), and the constant growth rate is 4% a year.

1. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.

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2. If the company issued new stock, it would incur an 11% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer rating: 100% (QA)

The cost of equity for a company can be calculated in a couple of ways depending on whether the comp... View the full answer