3) Mullin has preferred stock with a current market price of $40 per share. The preferred stock pays an annual dividend of 5% based on its par value of $100. Flotation costs associated with the sale of preferred stock equal $1.50 per share. The company's marginal tax rate is 35%. Therefore, the cost of issuing new preferred stock is:

A) 4.2857%

B) 8.7500%

C) 12.5000%

D) 12.9870%

E) 16.2500%