Katy Co. is expected to pay a $2.00 dividend at year end (D1=$2.00), the dividend is expected to grow at a constant rate of 5.50% per year, and the common stock currently sells for $51.50 a share. The before-tax cost of debt is 6.10%, and the tax rate is 40%. the target capital structure consists of 45% Debt and 55% common equity.

What is the companies WACC if all the equity used is from retained earnings? ( do not round intermediate calculations)

6.81%

6.66%

5.69%

7.79%

5.06%