Firm A is a publicly listed renewable energy company with a credit rating of BB. It has 20 million shares outstanding and is currently paying a dividend per share of $0.5. The dividend is expected to grow at a constant rate of 5% per year. Firm As current share price is $8. Firm As only debt involves plain vanilla bonds with the total market value of $100 million and a YTM of 10%. Firm As marginal tax rate is 30%. The current risk-free rate is 1%. The expected market return is 7%. The average recovery rate at default is 40%. The average annual default rate for BB-rated firms is 2.5%.

The cost of capital for Firm A is closest to: