MOOOHOOO Corp (MH) has debt to equity ratio of 1 and an equity beta of 1.90. Currently MHs debt cost of capital is 5.5%. If MH is considering a change: by issuing debt to buyback stock to have a debt-equity ratio of 2 that it will maintain this ratio forever. With this change assume MHs cost of debt capital will be 6% and their tax rate is 35%. If the expected market return is 9% and the risk free rate is 5% answer the following questions:

7) What is the current equity cost of capital of the firm?

1. r_e=.151
2. r_e= .144
3. r_e= .126
4. r_e= .101
5. r_e= .091