A firms common stock currently sells for $40 per share. The firms next dividend expected to pay is $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10% per year. Whats the firms cost of common stock using DCF approach? (Why is C the correct answer?)

a) 15.5%

b) 9.5%

c)15.0%

d) 15.5%

e) 16.5%