For a particular firm, the purchasers of common stock require an 11% rate of return, bonds are sold at a 7% interest rate and bank loans are available at 9%. The firm has a 38% combined tax rate. For the next year money available through common stock, bonds and bank loans is shown below:

Source Funds Available Rate

Common Stock. $40 million 11%

Bonds $20 million 7%

Bank Loans $60 million 9%

The after-tax weighted cost of capital for this firm is most nearly:

a. 6.9%

b. 7.2%

c. 9.0%

d. 9.3%