Your firm has previously issued bonds and common stock. It is considering a new issuance of preferred equity (50,000 shares at $50 per share with a promised dividend of $6). Before making the decision, your firm would like to estimate its new firm-level cost of capital.

Your company has 100,000 shares of common stock outstanding and the stock sells for $80 per share. The stock will pay a dividend of $10 next period and these dividends are expected to grow at a rate of 1% indefinitely. The company also has outstanding debt with a book value of $5M. These 5-year bonds have a Par value of $1000, a 5% coupon rate with semi-annual payments, and are currently trading at $900 each. The corporate tax rate is 30%.

Find the cost (rate of return) for your debt before taxes.