As a newly hired financial analyst, your first job at VarsalLife Corp. is to calculate the Company's cost of capital. The present capital structure is as follows;

Market Values

Debt $80 Million

Preferred Stock $10 Million

Common Stock $110 Million

If VarsalLife issues new debt, the bond market expects a yield of 7.5%. Preferred stock is trading for $96, has a $100 par value and pays an annual dividend of 8%. The next dividend for the Common Shares is expected to be $2.50 and growing at 3% per year. The current market price of the common stock is $34.00. The tax rate is 25%, What is the weighted average cost of capital.?

A.

8.77

B.

6.84

C.

8.36

D.

7.52