A firm has a return on equity of 12.4% according to the dividend growth model and a return of 18.7% according to the capital asset pricing model. The market rate of return is 13.5%. What rate should the firm use as the cost of equity when computing the firm's weighted average cost of capital (WACC)?

Select one:

a.12.4% because it is lower than 18.7%

b.18.7% because it is higher than 12.4%

c.The arithmetic average of 12.4% and 18.7%

d.The arithmetic average of 12.4%, 13.5% and 18.7%

e.13.5%