A company's capital structure is currently 80% equity and 20% debt. The cost of debt is 5% and the cost of equity is 9%. The taxation rate is 30%. What will happen to the company's weighted average cost of capital (WACC) if the company increases the proportion of debt to 40% (and reduced the proportion of equity to 60%)?

a.

The WACC will fall from 80% to 60%

b.

The WACC will fall from 8.80% to 6.10%.

c.

The WACC will increase from 7.80% to 11.70%

d.

The WACC will increase from 20% to 40%

e.

The WACC will fall from 7.90% to 6.80%