Consider a project with free cash flows in one year of $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%.

1. Suppose that you borrow only $40,000 at risk free rate and issues new equity to cover the remainder the firm's equity cost of capital will be closest to?

2. Is your answer closest to:

A) 0

B) 50,000

C) 90,000

D) 40,000

(Please provide formulas, step-by-step (breakdown))