A firm has book equity of $450 million, debt of $420 million, and excess cash of $120 million. Its current stock price is $77/share, and its market capitalization is 1.33 billion. Its CAPM beta is 1.60. The tax rate is 21%. Yield to maturity on its debt is 5.0%.

If the relevant risk-free rate is 2.0% and expected return on the market is 7%, what rate should we use to discount the free cash flows of this firm's typical projects? Pick the closest answer.

Group of answer choices

4%

5%

6%

7%

8%

9%

10%

11%