ANSWER IS 8.74 %. JUST NEED SOME CLARIFICATION ON THE PROCESS TO GET THE ANSWER. ANY HELP IS GLADLY APPRECIATED!

Table 9.2 A firm has determined its optimal structure which is composed of the following sources and target market value proportions A firm has determined its optimal structure which is composed of the following sources and target market value proportions Source of Capital Target Market Proportions ho 60% Long-term debt Common stock equity 40 Source of Capital Proportions 60% Long-term debt Common 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 The weighted average cost of capital up to the point when retained earnings are exhausted is (See Table 92) O A. 8.74 percent OB. 6.8 percent OC. 11.29 percent D. 7.7 percent