You work for company QAZ and your work is to estimate the cost of capital for the new business expansion. You have collected the following data.

Pure Play Equity Beta (e) Debt-to-Firm Value ratio Company A 1.20 0.25 Company B 1.60 0.50 Both pure plays have a zero-debt beta and a zero corporate tax rate. In addition, the market risk premium is 6.5 % and the risk-free rate is 1.5%. Assuming the required rate of return on company QAZ debt is 3.50% (assume the debt-beta is zero), the corporate tax rate is 25% for the company. The firms current debt-to-firm value is 30%, but the new business will be financed with 40% debt. Compute an estimate of the weighted average cost of capital (WACC) for the new business.