Question 6 (2.5 points) Consider the following scenario: Suppose a company has 100 million common shares outstanding, and each share sells for $20. We have estimated that the shares havea beta of 1.25, the risk-free rate is 2%, and the expected market return is 6%. The marginal tax rate for this company is 35%. The company also has $1 billion of bonds outstanding and the yield to maturity on these bonds is 4%. The company has a target capital structure of 60% equity and 40% debt. It does not and will not issue preferred stocks in the future. What is the cost of equity for this company? A) 8% B) 6% C) 4% D) 7%