Verigreen Lawn Care products just paid a dividend of $1.85. This dividend is expected to grow at a constant rate of 3% per year, so the next expected dividend is $1.90. The stock price is currently $12.50

New stock can be sold at this price subject to flotation costs of 15%. The company's marginal tax rate is 40%. Compute the cost of common equity.
A) 18.0%
B) 17.8%
C) 18.2%
D) 15.2%

Answer: C