Problem:
Rizzo Co. expects to earn $3.75 per share during the current year, its expected payout ratio is 40%, its expected constant dividend growth rate is 3.5%, and its common stock currently sells for $27.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred.
Required:
Question: What would the cost of equity from new common stock be?
Note: Please answer in proper manner and show all computations