A firm operating in perfect capital markets finances its operations with a capital structure consisting of 60% equity and 40% debt. The cost of equity is 15% and the cost of debt is 6%. If the firm borrows money and retires outstanding stock such that the new capital structure proportions are 50% equity and 50% debt, what is the new cost of equity (assuming the cost of debt remains at 6%).

Select one:

a. 10.4%

b. 11.4%

c. None of the suggested answers

d. 12.45%

e. 16.8%