Question: Tom & Jerry's common stock current trades at $40 a share. It is expected to pay an annual dividend of $2.00 a share at the

Tom & Jerry's common stock current trades at $40 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 6 percent a year. What is the company's cost of common equity if all of its equity comes from retained earnings?

If the company were to issue new stock, it would incur a 10 percent flotation cost.
	What would the cost of equity from new stock be?

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