John's Construction Co. sells 80,000 bonds at par value. These bonds yield 7.5%. The company has 5 million shares of common stock outstanding. The stock has an asset beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. John's tax rate is 35%. What is the change in John's weighted average cost of capital as a result of the issuance of the debt? (Solution uses M&M II rather than the Hamada.)

Group of answer choices

10.54%

11.56%

12.80%

14.18%