LAC Corporation has a total face value of $1432000 in zero-coupon bonds outstanding, which are currently trading a price of $890 per $1000 face value and have a yield-to-maturity of 5%. It also has 100000 common shares outstanding with a market value of $68 per share, and a cost of equity of capital of 12%. The current tax rate is 25%. What is its weighted average cost of capital?

1. 10.7%
2. 9.7%
3. 8.7%
4. 7.7%