Caribbean Enterprises recently hired you to estimate their cost of capital. The firm's capital structure consists of 40% debt, 20% preferred equity and 40% common equity. The firm has outstanding bonds with 10 years left to maturity, par value of $1,000 and an annual coupon of 12%. The bonds currently trade for $1,192.53. Each share of the firm's preferred stock is currently selling for $80 and pays an annual dividend of $8. The firm does not plan on issuing new shares of common equity. It will retain earnings instead. Management has no preferred method for calculating the cost of retained earnings but they provide you with the following information: The company expects dividend growth of 2% forever. The common shares are expected to pay a dividend of $1.50 at year-end, and the shares currently trade for $12 each. Also, the company's common stock is risky enough that it commands a premium of 3% over the company's debt. If the firm faces a flat state- plus-federal tax rate of 25%, what is Caribbean Enterprises' cost of capital? 7.53%% 8% 10% 10.9%