1. Fresh New Styles Inc. has an equity beta of 0.92. The company just paid an annual dividend of $1.30 and expects dividends to increase by 6 percent annually. The expected market return is 12 percent, while the risk-free rate of return is 3.5 percent. Finally, the companys common stock is trading at $34.80 per share. What is the firms average cost of equity?

1. 8.71 percent
2. 9.46 percent
3. 9.90 percent
4. 10.64 percent
5. 11.52 percent