Ray Stokes is raising capital for a new company called NO Balloons Inc. NO Balloons will manufacture and sell festive balloons. Because of the shortage ofhelium, the balloons will be filled with nitrous oxide instead. NO Balloons plans to finance the business with common equity and longterm debt. It plans to sell 12 million shares of common stock and200,000 bonds. Each bond will have a coupon rate of5%, will pay its coupons semiannually and will have a face value of$1,000.The common stock will be issued at a price of$19.5 a share and has a beta of 1.1. The bonds will sell for89% of face value and have a6.25% yield to maturity. The market risk premium is5.25%, Tbills are yielding3.5%, and NOBalloons' tax rate is36%. What is NOBalloons' cost ofequity?

A. 5.25%

B. 9.63%

C. 9.28%

D. 7.75%

E. 8.75