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 8.2 percent. Debentures can be issued at a pre-tax cost of 11.7 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 $3 per share. The recent common stock dividend was $5.54. Dividends are expected to grow at 4% in the future.

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