Suppose the cost of capital of the Gadget Company is 10 percent. If Gadget has a capital structure that is 50 percent debt and 50 percent equity, its before-tax cost of debt is 5 percent, and its marginal tax rate is 20 percent, then its cost of equity capital is closest to:

a. 10 percent.

c. 14 percent.

b. 12 percent.

d. 16 percent.