The following information is available for two different common stocks: company A and Company B.

Company A

Company B

Free cash flow per share at the end of year 1

$1.00

$5.00

Growth rate in cash flow per share

8%

4%

Beta

1.3

.10

Risk-free return

7%

7%

Expected market return

13.5%

13.5%

Estimate the cost of equity for Company B.

Select one: a. 15.45% b. 6.45 c. 7.65% d. 12.2%

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