Li Holding Company paid a dividend yesterday of $3 per share (D0 = $3). The dividend is expected to grow at a constant rate of 5% per year. The price of Li's stock today is $22 per share. If Li decides to issue new common stock, flotation costs will equal $2 per share. Li's marginal tax rate is 40%. Based on the above information, the cost of retained earnings is:

5.14%

11.59%

20.75%

19.32%