Firm ABC has 0.5 million shares of common stocks outstanding, and the price per share is $50. The beta of the ABCs stock is estimated to be 1. The firm also has issued some debt. The total market value of its debt is $ 10 million. The debt is assumed to be risk-free. The risk-free interest rate is 7%. The stock market risk premium is 8%.

Suppose there are no taxes. The firm announces to issue 0.1 million additional shares at $50 per share and use that proceeds to buy back equal dollar amount of debt. What is the cost of equity under the new capital structure?