Black Inc. is a manufacturing company with a cost of debt of 6.5%. The company is financed equally by equity and debt and is subject to a tax rate of 20%. An analyst investigating the optimal capital structure for the firm has estimated that the cost of equity of the company if it had no debt would be 8%. According to Modigliani and Miller proposition II with taxes, the cost of equity of the company is closest to:

a) 9.2%.

b) 7.3%.

c) 6.6%.

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