3. Proctor & Gamble has 40 million shares of common stock with a book value of $8.50 per share and a current market price of $22.50 per share. Proctor & Gamble's beta is 1.7. The firm's outstanding bonds have a total face value of $140 million, a maturity of 10 years, a 3.5% semi- annual coupon, and are selling currently for 105% of par value. The marginal tax rate is 21%, the risk free rate is 3.4%, and the market rate is 9.5%. What discount rate should Proctor & Gamble use to evaluate its projects (i.e. its cost of capital)? A) 4.04% B) 12.16% C) 12.00% D) 12.84%