Javits & Sons\' common stock currently trades at $37.00 a share. It is expected

Question

Javits & Sons' common stock currently trades at $37.00 a share. It is expected to pay an annual dividend of $2.25 a share at the end of the year (D1 = $2.25), and the constant growth rate is 3% a year.

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.

______%

If the company were to issue new stock, it would incur a 10% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places.

______%

Explanation / Answer

a) Ke= (dps/mp)*100+G= (2.25/37)*100+3%=6+3=9% b)Ke with flotation ={dps/mp(1-FR)}*100+G={2.25/37(1-.10)}*100+3%=6.7+3=9.7%

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