SM Books is a publishing company that is considering expanding into educational services. SM Books has a regression beta of 0.80 and a debt to capital ratio (D/(D+E)) of 20%. The unlevered beta for educational service companies is 1.10 and SM plans to use its existing debt ratio in funding the business. SMs marginal tax rate is 40%. SM is rated A, and the default spread for A rated firms is 2%. Estimate the cost of capital you would use in doing a project analysis of the educational service investment. (You can assume that the risk-free rate is 4% and the market risk premium is 4.82%)

Group of answer choices

8.80%

8.96%

8%

10.25%