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Ellington electronics wants you to calculate its cost of common stock

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Ellington electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $2.00 per share and teh current price of its common stock is $40 per share. The expected growth rate is 3%.

a) Compute the cost of retained earnings.

b) If a $3 flotation cost is involved compute the cost of new common stock.