Please calculate a firms WACC (weighted average cost of capital) using the following information:

The firms ROE is 12% and its Payout Ratio is 40% The firm has 9 million shares outstanding, each of which trades at a price of $11. The firm expects to pay a dividend of $1.50 at the end of the year. The firm has outstanding debt with a face value of $70 million. These are all 20-year bonds with a 5% coupon (paid semi-annually) and they are selling at a price of $1,352.11 per $1,000 bond. The yield on Treasury bills is 2.5%. The return on the market is 7%. The firms beta is 2. The firms tax rate is 30%. What is the firms pre-tax cost of debt?

Multiple Choice 6.28% 2.71% 1.87% 3.25%