ADK Industries Common Shares Sell for $40 Per Share

Multiple Choice

ADK Industries common shares sell for $40 per share. ADK expects to set their next annual dividend at $1.75 per share. If ADK expects future dividends to grow at 7% per year, indefinitely, the current risk-free rate is 4%, the expected rate on the market is 11%, and the stock has a beta of 1.2, what should be the best estimate of the firm's cost of equity?

A) 11.89%
B) 11.38%
C) 12.40%
D) 12.71%