WestAce will generate a terminal cash ow of $228M or $72M in one year, each with equal likelihood. WestAces outstanding debt has a correct market value today of $80M and is due in a year. The cost of debt (r_D) is 8% and the unlevered cost of equity (r_U) is 20%. The capital market is perfect (no taxes, distress costs, etc.)

What is the cost of equity for WestAce?

a) 35%

b) 37%

c) 39%

d) 41%