Within the Modigliani Miller framework, under Scenario I (with no frictional costs, no taxes, and no financial distress), consider a firm with $40 million in cash flows, initially all equity financed, and the cost of equity is 13%. If the firm takes on new debt of $150 million, with a 9% interest rate, what is the new Re or cost of equity for the firm?

Select one:

a. 13%

b. just over 16%

c. 18.4%

d. 26.5%

e. just under 13%