Chilifreeze Frozen Snax Corp. has a current capital structure of:

Long Term Debt $ 25,000,000

Preferred Stock 1,000,000

Equity 39,000,000

Chilifreeze needs to finance $ 40,000,000 in capital expansion to open facilities in South America. Management has decided to maintain the current capital mix and feels that any common equity financing will be available through income from operations. The bank has indicated a long term bond can be arranged with an APR of 8%. Any risk premium for common stock investors over bond investors is estimated to be 3%. Required dividends on newly issued $100 par value preferred stock will be $7 and flotation costs will be 3%. Its tax rate is 40%.

The after tax cost of preferred stock is:

Select one:

a. 10.42%

b. 7.00%

c. 7.22%

d. 5.10%

e. 3.83%