DQZ Telecom is considering a project for the coming year, which will cost $50 million. DQZ plans to use the following combination of debt and equity to finance the investment.

• Issue $15 million of 20-year bonds at a price of 101, with a coupon rate of 8 percent, and flotation costs of 2 percent of par.

• Use $35 million of funds generated from (retained) earnings.

The equity market is expected to earn 12 percent. U.S. treasury bonds are currently yielding 5 percent. The beta coefficient for DQZ is estimated to be 0.60. DQZ is subject to an effective corporate income tax rate of 40 percent. Assume that the after-tax cost of debt is 7 percent and the cost of equity is 12 percent. Determine the weighted average cost of capital.