I had asked this question previously but the answer was incorrect from what my professor had put on the answer key and the explanation was confusing again, so I have to decided to repost the question...

I had asked this question previously but the answer was incorrect from what my professor had put on the answer key and the explanation was confusing again, so I have to decided to repost the question with the answer options and the answer that is listed to be correct.

the backwoods lumber co. has a debt equity ratio of .80. the firm's required return on assets is 12% and its cost of equity is 15.68% what is the pre tax cost of debt based on M&M II with no taxes?

a. 6.76%

b. 7.00%

c. 7.25%

d. 7.40% (marked correct on the answer key given)

e. 7.50%