Firm XYZ has 12 million shares of common stock selling for $45/share. They are expected to pay a $2.25 dividend next year, and the dividend is forecast to grow at 4%. They have 2 million shares of 6% preferred stock selling for $125/share and $100 million of 4% coupon bonds trading at par. They are in the 21% tax bracket. What is the cost of common stock?

a.

4%

b.

6%

c.

9%

d.

11%