The Delta Co

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 % and the market risk premium is 6.5 %. What should Delta use as its cost of equity if it decides to purchase some land and create a new residential community?

A) 11.93 %
B) 12.32 %
C) 12.43 %
D) 12.57 %
E) 12.71 %