Final answer:
The cost of the equity for Smathers Corporation, calculated using the CAPM formula, is 11.91%, which corresponds to option C.
Step-by-step explanation:
The cost of equity for Smathers Corporation can be calculated using the Capital Asset Pricing Model (CAPM), which is expressed as:
Cost of Equity = Risk-Free Rate + (Beta * Market Risk Premium)
By substituting the given values into the formula, we can calculate Smathers Corporation's cost of equity:
Cost of Equity = 3.06% + (1.18 * 7.50%)
= 3.06% + 8.85%
= 11.91%%
Consequently, the precise cost of equity for Smathers Corporation is 11.91%, validating option C as the accurate choice. This figure encapsulates the expected return demanded by investors for holding Smathers Corporation's equity, factoring in both the risk-free rate and the systematic risk associated with the market. The CAPM model, widely used for such calculations, provides a comprehensive approach to estimating the cost of equity, essential for financial decision-making and company valuation. Therefore, the final answer is 11.91%, corresponding to option C.