A firm has determined its optimal structure which is composed of the following sources and target market value proportions.

Target Market - Source of Capital Proportions

Long-term debt 60 %

Stock equity 40 %

Debt: The firm can sell a 15-year, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50. Common Stock: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent.

Assuming the firm plans to pay out all of its earnings as dividends, the weighted average cost of capital is A) 11.6% B) 12.1% C) 10.9% D) 8.85%