Bay Beach Industries wants to maintain their capital structure of $40\%$ debt and $60\%$ equity. The firm's tax rate is $34\%.$ The firm can issue the following securities to finance the investments:

Bonds: Mortgage bonds can be issued at a pre$-$tax cost of $8\mathrm{.}8$ percent. Debentures can be issued at a pre$-$tax cost of $8\mathrm{.}6$ percent.

Common Equity: Some retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $$50.$ Flotation costs will be $$5$ per share. The recent common stock dividend was $$3\mathrm{.}14.$ Dividends are expected to grow at $4\%$ in the future.

What is the cost of capital using mortgage bonds and internal equity?