Layman Co. has the following target capital structure:

30% Debt

20% Preferred Stock

50% Common Stock

The current average coupon on the company's bonds with a 5 year maturity is 10% with a yield to maturity of 10.5%. The marginal tax rate is 35%. The company can issue perpetual preferred stock with a constant dividend of $3.50 per share at a price of $40. The company's common stock's beta is 1.40. The risk free rate of return is 3.0%. The market risk premium is 6.5%.

What is the weighted average cost of capital?

Select one:

a. 6.83%

b. 9.18%

c. 8.56%

d. 9.85%