The Delta Co owns retail stores that market home building supplies. La

The Delta Co owns retail stores that market home building supplies. Largo, Inc builds single family homes in residential developments. Delta has a beta of 1.22 and Largo has a beta of 1.34.

The risk-free rate of return is 4 percent and the market risk premium is 6.5 percent. What should Delta use as their cost of equity if they decide to purchase some land and create a new residential community?
A) 11.93 percent
B) 12.32 percent
C) 12.43 percent
D) 12.57 percent
E) 12.71 percent

ANSWER

E