Changed capital structure to debt and equity

Assignment Help Financial Management

Reference no: EM131929026

Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 5%; the market risk premium, RPM, is 7%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 12%, which is determined by the CAPM. What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Round your answer to two decimal places. Do not round intermediate steps.

Reference no: EM131929026

Questions Cloud

Write a four-page paper on the autobiograpy of malcolm x : Write a 4-page paper on The Autobiograpy of Malcolm X by Alex Haley for my philosophy course. Be sure to include personal and analytical take on the reading.

Compare the magnitude of healthcare costs : From the second e-Activity, compare the magnitude of healthcare costs in the United States to that of other developed countries.

What stress symptom might have alerted managers to a problem : What appeared to be happening in the France Telecom's workplace? What stress symptoms might have alerted managers to a problem?

Full employment level in the goods market : To reach the full employment level in the goods market, should expansionary or contractionary monetary or fiscal policy be implemented?

Changed capital structure to debt and equity : What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity?

Summarize the early development of the indigenous population : Read Webtext titled "The Americas Before the European Migrations," then briefly summarize the early development of the indigenous population of America.

Analyze the current trends affecting the evolution of HIT : Analyze the current trends affecting the evolution of health information technology (HIT). Determine a significant trend that you believe is having the most.

Short-run and long-run production time frame : What is the difference between short-run and long-run production time frame?

Find the value of your firm equity using relative valuation : find the value of your firm's equity using a relative valuation. Assume neither firm has a significant amount of cash on hand,

User Account

All Pages