Anderson Company Has Four Investment Opportunities with the Following Costs

Anderson Company has four investment opportunities with the following costs (all costs are paid at t = 0) and estimated internal rates of return (IRR) : The company has a target capital structure which consists of 40 percent ordinary equity, 40 percent debt, and 20 percent preference shares.The company has R1,000 in retained earnings.The company expects its year-end dividend to be R3.00 per share .The dividend is expected to grow at a constant rate of 5 percent a year.The company's share price is currently R42.75.If the company issues new ordinary shares, the company will pay its investment bankers a 10 percent flotation cost.The company can issue corporate bonds with a yield to maturity of 10 percent.The company is in the 35 percent tax bracket.How large can the cost of preference shares be (including flotation costs) and it still be profitable for the company to invest in all four projects?

A) 7.75%
B) 8.90%
C) 10.46%
D) 11.54%
E) 12.68%