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

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 of 10% per year. 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.

The firm's cost of a new issue of common stock is ________.

a.) 14.3 percent

b.) 10.2 percent

c.)16.7 percent

d.) 17.0 percent

ource of Capital Long-term debt Common stock equity Target Market Proportions 60% 40