Laramie Trucking's CEO Is Considering a Change to the Company's

Laramie Trucking's CEO is considering a change to the company's capital structure, which currently consists of 25% debt and 75% equity.The CFO believes the firm should use more debt, but the CEO is reluctant to increase the debt ratio.The risk-free rate, r_RF, is 5.0%, the market risk premium, RP_M, is 6.0%, and the firm's tax rate is 25%.Currently, the cost of equity, r_s, is 11.5% as determined by the CAPM.What would be the estimated cost of equity if the firm used 60% debt? (Hint: You must first find the current beta and then the unlevered beta to solve the problem.)

A) 11.50%
B) 12.50%
C) 13.58%
D) 14.77%
E) 16.05%