A firm's true price-to-earnings ratio is 10 . The firm does not have any leverage and its cost of capital is 8 percent. The firm's dividends grow at 3 percent forever. The firm is considering taking out a bank loan with an interest rate of 5 percent. The bank loan would increase the firm's leverage ratio from 0 to 40 percent. The firm's tax rate is 30 percent. What is the firm's true price-to-earnings (PE) ratio with the new capital structure (that is, with leverage)? \begin{tabular}{l} \hline 12.50 \\ \hline 9.38 \\ \hline 6.25 \\ \hline 7.81 \\ 10.94 \end{tabular}