Walter's Distributors Have a Cost of Equity of 13

Multiple Choice

Walter's Distributors have a cost of equity of 13.84% and an unlevered cost of capital of 12%. The company has $5,000 in debt that is selling at par value. The levered value of the firm is $12,000 and the tax rate is 34%. What is the pre-tax cost of debt?

A) 7.92%
B) 8.10%
C) 8.16%
D) 8.84%
E) 9.00%