Response to the following problem:
A company has preferred stock that can be sold for $28 per share. The preferred stock pays an annual dividend of 5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.50 per share. The company's marginal tax rate is 35%. Therefore, the cost of the preferred stock is:
A. 18.87%
B. 17.86%
C. 11.61%
D. 12.26%
Please give all work on how to arrive at your answer. Please be as explanatory as possible.