Question: Morrissey plc and Marr plc are both in the same line of business and of similar size. Morrissey plc is financed entirely by equity and

Morrissey plc and Marr plc are both in the same line of business and of similar size. Morrissey plc is financed entirely by equity and has a cost of equity of 11%. Assuming a world consistent with Miller and Modigliani's first paper (including the absence of taxes) on capital structure, what will the expected cost of equity be for Marr plc if it raises 30% of its finances through a 4% bank loan?

	A.	4.0%
	B.	11.0%
	C.	8.0%
	D.	14.0%
	E.	17.7%

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