M&M Enterprises is a publicly traded company. It currently has 50 million shares trading at $20/share and $250 million in book value of equity. The firm also has book value of debt of $ 75 million and market value of debt of $ 100 million. The firm also has operating lease commitments, 30 million in each of the next 10 years. The cost of equity for the company is 12%, the pre-tax cost of debt is 4% and the marginal tax rate is 40%. What is the cost of capital?

a.

12.14%

b.

7.55%

c.

9.55%

d.

8.23%

e.

10.65%