In 2014, American Faucet Corporation (AFC) had earnings before interest and taxes of $150 million and interest expense during the period was $20 million. AFC is subject to a tax rate of 35 percent. The book value and market value of AFC's common equity at the beginning of 2014 was $500 million and $700 million, respectively. AFC's debt had a book value of $200 million at the beginning and end of 2014 and the company pays 10 percent interest on its debt. The company's cost of equity capital is estimated to be 11.5 percent. Based on this information, AFC's residual income will be closest to:

A. $20.0 million.

B. $27.0 million.

C. $4.5 million.