Richmond Industrials recently hired you to estimate their cost of capital. To assist you in the process, Richmond's management provided you with the following information. The company has preferred stock that currently pays an annual dividend of $4 and is currently trading for a price of $50. The company also has outstanding bonds with effective maturity of 10 years, coupon rate of 8%, par value of $1,000 and current price of $877.11. Finally, the company does not plan on issuing new stock and instead plans to retain earnings. The firm's common stock is expected to pay a dividend of $2 at year end. The stock exhibits constant growth of 5% and is currently trading at a price of $40 The company's stock is risky enough that it commands a 2% premium over the company's bonds. If the firm faces a tax rate of 25% and has a capital structure consisting of 10% preferred equity, 40% debt and 50% common equity, what is its cost of capital