A company is currently financed using debt and equity. The market value of debt is $25 million, and the market value of equity is $40 million. The company has recently announced that it will reduce the proportion of debt financing so the debt-to-equity ratio is 45%. The current after-tax cost of debt and equity are 8% and 12%, respectively. Using the current capital structure and target capital structure, the company's costs of capital are closest to:

CurrentTarget A.7.4% 10.2% B.10.5% 10.2% C.10.5% 10.8%

Row A Row B Row C