Panhandle Corp. is calculating its WACC. Its semiannual bonds have a maturity of eighteen years and a coupon rate of 7.6%. The preferred stock pays a dividend of $7. The common stock has a current dividend of $2.25. The firm is growing at 6%. Flotation costs are 7% on bonds, 10% on preferred stock and 12% on common stock. The bonds are currently selling for $1050 while the preferred stock is selling for $80 and the common stock for $32. The tax rate is 35%. What is the difference between the cost of external and internal equity?

external is 1.02% larger

external is 2.04% larger

internal is 1.02% larger

internal is 2.04% larger