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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) equation: R = RF + β(RM - RF ) the cost of using retained earnings to finance the capital expenditures is: A. 12.40%. B. 12.99%. C. 14.71%. D. 13.96%. |