Detailed Answer
Answer (D) is correct. The component cost of preferred stock is equal to the dividend yield, i.e., the cash dividend divided by the market price of the stock. (Dividends on preferred stock are not deductible for tax purposes; therefore, there is no adjustment for tax savings.) The annual dividend on preferred stock is $100 when the price of the stock is $960. This results in a cost of capital of about 10.4% ($100 ÷ $960).