A media company has a current capital structure of 80% debt and 20% common equity and its beta is 1.60, and its tax rate is 35%. However, the CFO wants to move to a capital structure with 40% debt and 60% equity to reduce debt. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the capital structure shift change the firm's cost of equity?

Question 20 options:

a)

5.78%

b)

6.36%

c)

6.99%

d)

7.69%