Morales Publishing's Tax Rate Is 25%, Its Beta Is 1

Multiple Choice

Morales Publishing's tax rate is 25%, 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) 1.91%
B) 2.12%
C) 2.33%
D) 2.57%
E) 2.82%