Durocorp has a target capital structure of 40% debt and 60% equity. Durocorp is planning to invest in a project that will necessitate raising new capital. New debt will be issued at a before-tax yield of 12%, with a coupon rate of 10%. The equity will be provided by internally generated funds so no new outside equity will be issued. If the required rate of return on the firm's stock is 18% and its marginal tax rate is 40%, compute the firm's cost of capital.

Answer

		13.20%
		13.68%
		15.00%
		9.36%