O'Brien Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm's cost of common from retained earnings based on the CAPM?

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The correct answer is A because the cost of common from retained earnings based on the CAPM is 11.30%. The formula for the cost of common from retained earnings based on the CAPM is:rRF + RPM * (b - 1)where:rRF is the risk-free rateRPM is the market risk premiumb is the beta of the stockIn this case, the risk-free rate is 5.00%, the market risk premium is 6.00%, and the beta of the stock is 1.05. Plugging these values into the formula, we get:5.00% + 6.00% * (1.05 - 1) = 11.30%