The Warren Corporation Has an Overall Cost of Equity of 9.5

The Warren Corporation has an overall cost of equity of 9.5 % and a beta of 1.3. The firm is financed 100 % with common stock. The risk-free rate of return is 3 %. What is an appropriate cost of capital for a division within the firm that has an estimated beta of.85?

A) 5.75 %
B) 6.50 %
C) 7.25 %
D) 8.50 %
E) 9.50 %