Detailed Answer
Answer (A) is correct. The 7% debt cost and the 12% equity cost should be weighted by the proportions of the total investment represented by each source of capital. The total project costs $50 million, of which debt is $15 million, or 30% of the total. Equity capital is the other 70%. Consequently, the weighted-average cost of capital is 10.5% [(30% × 7%) + (70% × 12%)].