Armadillo Mfg. Co. has a target capital structure of 50% debtand 50% equity. The

Armadillo Mfg. Co. has a target capital structure of 50% debtand 50% equity. They are planning to invest in a project which willnecessitate raising new capital. New debt will be issued at abefore-tax yield of 12% with a coupon rate of 10%. The equity willbe provided by internally generated funds. No new outside equitywill be issued. If the required rate of return on the firms stockis 15% and its marginal tax rate is 40% compute the firms cost ofcapital. a. 13.5% b. 12.5% c. 7.2% d. 11.1%