Pan American Airlines' Shares Are Currently Trading at $69

Pan American Airlines' shares are currently trading at $69.25 each.The yield on Pan Am's debt is 4% and the firm's beta is 0.7.The T-Bill rate is 4% and the expected return on the market (E (k_M) ) is 9%.The company's target capital structure is 25% debt and 75% equity.Pan American Airlines pays a combined federal and state tax rate of 35%.What is Pan Am's cost of equity?

A) 7.0%
B) 7.5%
C) 8.0%
D) 8.5%
E) 9.0%