Johnson Tire Distributors has an unlevered cost of capital of 10 percent, a tax rate of 35 percent, and expected earnings before interest and taxes of $1,800. The company has $3,600 in bonds outstanding that have an 8 percent coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?

9.45 percent

7.35 percent

8.40 percent

6.30 percent

10.50 percent