XYZ Corporation would like to raise money to fund its capital budgeting projects by selling preferred stock. The current market price of the preferred stock is $20. However, the company will incur flotation costs of $2 per share. The corporation pays a dividend of $1.50 per share on the preferred stock. XYZ Corporation's marginal tax rate is 40%. Calculate the cost of preferred stock for use in the corporation's calculation of its weighted average cost of capital.

A.

4.5%

B.

5.0%

C.

8.3%

D.

7.5%