Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a constant rate of 6.50% a year, and the common stock currently sells for $87.50 a share. The before-tax cost of debt is 9.50%, and the tax rate is 25%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings? Do not round your intermediate calculations.

a. 8.24%

b. 7.07%

c. 8.35%

d. 8.13%

e. 8.45%