Jeff Pots n Things, Inc., currently has the following financial and market information:

% Debt in capital structure = 60%

%Equity in capital structure = 40%

Beta = 1.8

Risk-free rate = 4%

Market risk premium = 6%

required return on debt = 9%

Tax rate = 25%

Jeff recognizes that 60% debt is too much and wants to issue stock to recapitalize to a capital structure of 20% debt and 80% equity. Jeff's bankers say if it does so, then the yield on the debt that remains will drop to 7%. Jeff's believes that the APV growth model's expression for levered returns is most applicable to the company's situation. What will be Jeff's cost of equity after the recapitalization?