Consider a project with free cash flows in one year is $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%.

Suppose that you borrow $60,000 in financing the project. According to the MM proposition II, the firm's equity cost of capital will be closest to:

a. 45%

b. 30%

c. 25%

d. 35%