apple Inc. is a company that derives equal portions of its revenues from the telecom and entertainment businesses. The company has targeted a debt to capital ratio of 20% for the firm and an after-tax cost of debt of 3%. The beta for the telecom business is 0.80 and the beta for the entertainment business is 1.20; the risk free rate in US dollars is 2.5% and the equity risk premium is 5%. apple is considering a new project in the entertainment business that will be funded entirely with debt. What cost of capital should you use in assessing this project?

Select one:

a. 6.60%

b. 4.10%

c. 3.00%

d. 8.50%

e. 7.40%