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. 7.65%

c. 12.2%

d. 6.45