Morales Publishing's Tax Rate Is 40%,its Beta Is 1

Multiple Choice

Morales Publishing's tax rate is 40%,its beta is 1.10,and it uses no debt.However,the CFO is considering moving to a capital structure with 30% debt and 70% equity.If the risk-free rate is 5.0% and the market risk premium is 6.0%,by how much would the capital structure shift change the firm's cost of equity?

A) 1.53%
B) 1.70%
C) 1.87%
D) 2.05%
E) 2.26%