Suppose a company, NormalGrowth plc, has an outstanding bond: its annual yield- to-maturity is 10%; the market value of the bond is 300,000; the book value of the bond is 200,000. When the company issued the bond, which is two years ago, the required return to this bond at that time was 18%. The company has 20,000 outstanding ordinary shares of which per-share market price is 5, whereas the per- share book value of this companys ordinary shares is 2.5. Assume CAPM holds: the (annual) beta of NormalGrowth plcs ordinary shares is 2. The expected (annual) return to the market portfolio is 12%, and the risk-free (annual) rate is 4%. Assume

that the corporate tax rate is 40%. What is the (annual) weighted average cost of capital of NormalGrowth plc? A. 7.5% B. 8.0% C. 9.5% D. 10.0% E. 13.1%

when caculating Kd, why not use 18%) THANKS