Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO believes the firm should use more debt. The risk-free rate, rRF, is 5%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, Cyclone's cost of equity is 13%, which is determined by the CAPM. What would be Cyclone's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? ______________%
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO believes the firm should use more debt. The risk-free rate, rRF, is 5%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, Cyclone's cost of equity is 13%, which is determined by the CAPM. What would be Cyclone's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? ______________%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO
believes the firm should use more debt. The risk-free rate, rRF, is 5%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, Cyclone's
cost of equity is 13%, which is determined by the CAPM. What would be Cyclone's estimated cost of equity if it changed its capital structure to 50% debt and 50%
equity? ______________%
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