Problem:
You have been hired as a consultant by Feludi Inc.'s CFO, who wants you to help her estimate the cost of capital. You have been provided with the following data: the risk-free rate is = 4.10%; the market risk premium = 5.25%; and beta = 1.30.
Required
Question: Based on the CAPM approach, what is the cost of common equity from retained earnings?
Note: Provide support for your rationale.