A company that is currently $100\%$ equity financed has a required return on its equity of $14\%.$

The company would like to get rid of some of the equity in its capital structure, and replace it

with debt, for tax purposes. In particular, the company wants to replace $20\%$ of its shares of

stock with debt $($i$.$e$.,$ convert to a $20\%$ debt$-$to$-$value ratio$).$ If the firm pays interest at a rate of

$7\%,$ what will be the required return on the firm$$s equity after the firm changes its capital

structure?

A$.15\mathrm{.}17\%$

B$.15\mathrm{.}40\%$

C$.15\mathrm{.}75\%$

D$.16\mathrm{.}80\%$

E$.17\mathrm{.}50\%$