3) ABC Company has publicly traded $1,000 par value, 5% semiannual coupon bonds which mature in 18 years. These bonds have a current market price of $1045. The company also has preferred stock with a $70 par and 6% annual dividend. The market has priced the preferred stock at $89. ABCs common stock has a beta of 1.4. You estimate the risk-free rate to be 2% and the required return on the market to be 12%. The companys average tax rate is 30%.

What is the cost of the companys common stock?

A) 16.0%

B) 18.7%

C) 18.0%

D) 17.4%