Locomotive Corporation, an all-equity firm, currently has market capitalization of $10 million and 500,000 shares of common stock outstanding. It has an equity cost of capital of 10 percent. The company is planning to repurchase part of its common stocks by issuing $4 million corporate debt. The cost of this corporate debt is 8 percent per year. Assume perfect capital markets. What is the expected return on the equity of an otherwise identical levered firm?

A. 11.33%

B. 10%

C. 13.11%

D. 11.31%