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%.Pan American Airlines pays a combined federal and state tax rate of 35%.The company's target capital structure is 25% debt and 75% equity.Pan Am's cost of debt is 2.6% and the company's cost of equity is 7.5%.What is the weighted average cost of capital for Pan Am?

A) 2.6%
B) 4.3%
C) 5.3%
D) 6.3%
E) 7.5%