18. Clavell Inc. is an all-equity funded publicly traded firm, with 100 million shares outstanding, trading at $10/ share. Its current cost of capital is 7.5% and it expects to generate pre-tax operating income of $45 million next year. The company is planning on borrowing $800 million at an interest rate of 7.5% and buying back shares. If the risk free rate is 3%, the equity risk premium is 6% and the marginal tax rate for all companies is 40%, estimate the cost of capital for the firm next year (after the share buyback)