Your company has a debt to equity breakdown of 40% debt and 60% equity, $800,000 for debt and $1,200,000 for equity. The interest rate on the debt is 7% and the tax rate is 17%. The cost of the equity is 14%. Which of the following is higher?

Hint: The cost of debt = Interest rate (1 - tax rate).

Group of answer choices

Cost of equity

Cost of debt

Cost of debt and cost of equity are the same.