Use the information for the question(s) below. Suppose Luther Industries is considering divesting one of its product lines. The product line is expected to generate free cash flows of $2 million per year, growing at a rate of 3% per year. Luther has an equity cost of capital of 10%, a debt cost of capital of 7%, a marginal tax rate of 35%, and a debt-equity ratio of 2. This product line is of average risk and Luther plans to maintain a constant debt-equity ratio.

Luther's Unlevered cost of capital is closest to:

A. 9.0%

B. 8.0%

C. 8.5%

D. 6.4%