Novalis Inc. was a firm with 120 million shares trading at $20/share, debt outstanding of $ 700 million and a cost of capital of 10%, prior to a recapitalization. It has just borrowed $950 million and completed a buyback of 40 million shares at $24/share. If the remaining shares trade at $30 after the buyback, estimate the cost of capital after the buyback. (You can assume that the company is in stable growth, growing 2% a year in perpetuity)

a.

10.36%

b.

6.23%

c.

14.14%

d.

8.12%