Mariano Manufacturing Can Issue a 25-Year, 8

Multiple Choice

Mariano Manufacturing can issue a 25-year, 8.8% annual payment bond at par.Its investment bankers also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 25% tax bracket.The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.0%, which would represent an after-tax risk premium.What coupon rate must be set on the preferred in order to issue it at par?

A) 8.27%
B) 8.69%
C) 9.12%
D) 9.58%
E) 10.05%