Joseph Cocker & Sons manufactures industrial ovens in Sheffield, UK.

The company has NO debt in its capital structure. There are no taxes.

The firm considers that the firm’s cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The market interest rate on the debt would be 8%. FollowingMM’s Proposition II, the firm’s cost of equity capital with the new capital structure would be:

a. 8%

b. 13%

c. 16%

d. 20%