You are assessing the optimal capital structure for Totem Holdings, a large publicly traded chemical company with $100$ million shares trading at $$30$ per share and $$1$ billion in debt outstanding. The firm currently has a pre$-$tax cost of debt of $6\%$ and you have correctly estimated the current cost of capital to be $9\%.$ The firm is planning to borrow an additional $$2$ billion $($which will push up the pre$-$tax cost of debt to $7\%)$ and

use the proceeds to buy back $$1$ billion in stock and invest $$1$ billion in its existing business. For simplicity, assume that the debt beta remains to be zero. The firm's tax rate is $40\%,$ the current riskfree rate is $5\%,$ and the market risk premium is $4\%.$

Required: Determine the firm's current cost of equity $($before the capital raising transaction$).$

$(10$ Points ${)}^{**}$