Mattis Systems Inc. is expected to pay a $2.65 dividend at year end (D₁= $2.65), the dividend is expected to grow at a constant rate of 5.00% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings? Show your calculations, if any, and explain your answer.