Firm XYZ Inc:s tax rate is 30%, its debt to total assets ratio is 40%, its beta is 1.25,1-year T-Bill rate is 2%, and the long Treasury rate is 3%. XYZ Inc.'s executives believed that market risk premium should be 5 percent. If the firm's cost of debt is 4 percent, what is the discount rate that the firm should use to evaluate an average project that reflects the firm's risk? It should be higher than 4 percent but lower than 5 percent. It should be somewhere between the Treasury rate of 3 percent and 4 percent. 8.75% 7.27% None of the above