Consider the following capital structure for ABC Corporation. The company has a floating-rate bank loan, preferred shares, and common equity in its capital structure. The firms tax rate is 35%. The risk-free rate is 4%.

Details on the components of the capital structure are listed below.

Debt:	Short-term, variable-rate bank loan
	$120 million par
	Remaining maturity of 2 years
	Bonds rate was recently reset to market yield of 5%;
	So, now priced at par (market value = $120 million)
Preferred equity:	$100 million par
	8% annual coupon
	Each $1,000 par issue is currently priced at $1,050.
Common equity:	5 million shares outstanding
	Current share price: $50
	Stock beta: 1.2
	Market risk premium = 8.5%

What is ABCs cost of preferred equity?

A) 7.62%

B) 8.00%

C) 8.40%

D) 12.00%