Candle Plc has recently paid a dividend of 0.40. Next year's dividend is expected to grow by 5% and this rate of growth is expected to continue for the foreseeable future. The company's shares are currently trading at a price of 3.50 per share.

The current risk-free rate is 4%, and the expected return on the market portfolio is 22%. Candle Plc's shares have a beta of 0.7.

Using the information above, calculate Candle Plc's cost of equity using both the Dividend Valuation Model and the Capital Asset Pricing Model. Take the average of these two results as the company's overall cost of equity.

Using this approach, what is Candle Plc's cost of equity?

17%

16.8%

16.6%

16.51%