Rekall Inc

Rekall Inc.,the memory implant company,has 7 million shares of common stock outstanding and 100,000 semi-annual bonds.The bonds have 6 years to maturity,a 9.05% coupon rate and a face value of $1,000 each.The common stock currently sells for $29.94 and just paid a dividend of $2.50.Dividends are paid annually and are expected to grow in perpetuity at 3%.The bonds sell for 94% of face value and have a 10.42% yield to maturity.The market risk premium is 5.5%,T-bills are yielding 5% and the tax rate is 30%.What is Rekall's cost of equity?

A) 8.6%
B) 10.4%
C) 10.5%
D) 11.4%
E) 11.6%