Problem:
Ballack Co.'s common stock currently sells for $36.00 per share. The growth rate is a constant 14.4%, and the company has an expected dividend yield of 2%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is 18%. New stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred.
Required:
Question: What would be the cost of new equity?
Note: Show all workings.