A firm currently has a debt-equity ratio of 50%, an after-tax cost of debt of 8%, and a cost of equity of 12%. The firm changes its debt-equity ratio to 40%, all else constant. This change will:

• Increase the total debt level of the firm.

• Decrease the cost of equity financing.

• Cause the NPV of projects under consideration to decrease.

• Decrease the firm's WACC.

• Not affect the firm's capital budgeting decisions.