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Colt, Inc. is planning to use retained earnings to finance anticipated capital expenditures. The beta coefficient for Colt's stock is 1.15, the risk-free rate of interest is 8.5%, and the market return is estimated at 12.4%. If a new issue of common stock were used in this model, the flotation costs would be 7%. By using the Capital Asset Pricing Model (CAPM) equationR = RF + β(RM - RF)the cost of using retained earnings to finance the capital expenditures is A. 14.71%. B. 12.40%. C. 12.99%. D. 13.96%.
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