There are two means of getting finance from common stocks namely:
 Retained earnings or internal common equity(Ke)
 External common equity (Kne) the issuance of NEW common stocks.
Let’s see how we can compute the aforesaid’s cost of capital
Method To Compute Of Cost Of EXTERNAL Common Equity

Dividend Growth Model
Formula is Ke(Required rate of return)= D1/NPo + g Where NPo is the net proceeds per share received by the company And D1=Do(1+g) 
Illustration Using the DIVIDEND GROWTH MODEL BASIS ON EXTERNAL COMMON EQUITY ( WITH FLOTATION COSTS) Company XYZ Ltd’s recently received $0.15 dividend per share and expect dividends to growth at an annual rate of 10%. The market price of the security is $3. The flotation costs equal 15% of market price. Compute the investors’ required rate of return using the Dividend Growth Model: Suggested Solution: Ke( Required rate of return) = D1/Po + g = $0.15(1+0.1) / $3(0.15x$3) + 0.1 = $0.165/2.55+0.1 =0.165 =16.5% 