GMC is re-evaluating its debt level. Its current capital structure consists of 75% debt and 25% common equity, its beta is 1.70, and its tax rate is 35%. However, the CFO thinks the company has too much debt, and he is considering moving to a capital structure with 50% debt and 50% equity. The risk-free rate is 4.0% and the market risk premium is 6.5%. By how much would the capital structure shift change the firm's cost of equity?

The firm's cost of equity decreases by 6.15%.

The firm's cost of equity increases by 6.15%.

The firm's cost of equity decreases by 4.81%.

The firm's cost of equity does not change.

The firm's cost of equity increases by 4.81%.