Following is information about Seasonal Products (SP) Corporation. The company has no preferred stock.

Type ofProportion of the

Type of CapitalAfter-Tax CostCapitalCapital Structure

Debt, rdT6.5%Debt40.0%

Common equityEquity60.0

Retained earnings, rs12.0

New issue, re15.0

The firm expects to retain $300,000 in earnings this year to invest in capital budgeting projects. If the SP's capital budget is expected to equal $550,000, what required rate of return, or marginal cost of capital, should be used when evaluating capital budgeting projects?

9.80%

11.60%

9.25%

11.17%

9.90%