Glo currently has an unsecured bank loan of $2.5 million and a before-tax interest rate of 9%. There are $6 million in common shares outstanding with an 18% cost of equity. The market value for debt and equity components is equal to the above values.

Glo has determined two viable options for raising the $4 million in capital necessary to fund the new production facility:

bank loan (7% before-tax)

preferred shares (12%)

Calculate Glo's weighted average cost of capital under each funding alternative based on the information provided above.