Railway Inc. has two bond issues outstanding. The first bond issue (which matures in 10 years) has a face value of $85 million with a 6 percent coupon, and sells for 92 percent of its face value. The second issue (which matures in 7 years) has a face value of $53.76 million with a 6 percent coupon, and sells for 94.7 percent of its face vale. The first issue has 7.13 percent yield to maturity, while the second has 6.76 percent yield to maturity. The company also has 9.6 million shares of common stock outstanding. The current share price is $51, and the book value per share is $4. The most recent dividend was $3.4 and the dividend growth rate is 4.3 percent. Additional Information: Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 31 percent.

Required: A. Cost of Capital (All in percentages)