You operate in a perfect capital market in which firms and individuals can borrow or lend as much as they like at 8% p.a. You have currently invested in XYZ Ltd which is unlevered and generates a return of 14% p.a. on average. If XYZ restructured to a 50/50 mix of debt/equity, what return on their investment would equity holders require to invest?

	A.	The return on equity will be 11% since half the firm is financed by equity (which costs 14%) and half is financed by debt (which costs 8%).
	B.	The return on equity is 8%.
	C.	The return on equity will be unchanged because the amount of debt raised is insufficient to substantially increase the risk of financial distress.
	D.	The return on equity will increase to 20%.