Stock of Cupcake Bakery sells for $42.50, most recent dividend was $1.25. A flotation cost of 10% would be required to issue new common stock. Security analysts are projecting that the common dividend will grow at a rate of 7% a year. The yield on 10 year Govt. bond is 4.00% and 3-month T-bill is 2.00%. The beta for the Bakerys stock is 1.10 and the expected stock market return is 10.50%. The yield on Bakery's bond is 5.50%. The appropriate bond risk premium is 4.0% for the bond-yield-plus risk premium approach.

Question: What is the Bakery's cost of equity from retained earnings using the bond yield plus risk premium approach?