Establish its optimal capital structure

Assignment Help Financial Management

Reference no: EM131539691

Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 20% debt and 80% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 4%; the market risk premium, RPM, is 5%; 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: EM131539691

Questions Cloud

Appropriate balance between government efforts : What is the appropriate balance between government efforts to improve health behaviors and reliance on individual responsibility?

What is the value of the company equity : What is the value of the company’s equity? What is the total value of Icarus?

Create a culturally synergistic solution : As a consultant, what would you recommend to help the parties involved create a culturally synergistic solution?

Fielder three contingency dimensions : Of Fielder's three contingency dimensions is one more important that the other two? Contrary to Fielder's assumption that an individual's leadership style.

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

The crisis are external or internal to the organization : Determine and explain if the existing factors that may cause the crisis are external or internal to the organization.

Purposive-directive and comprehensive report : Prepare a 4-5 page research paper on your chosen topic (not including the required 1 page for cover page, 1 page for references, tables and diagrams)

Write about a category of criminal activity you studied : For this project you will write about a category of criminal activity you studied and found most compelling during the course of this class

Compute the direct materials variance : The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 10,000 units per month.

User Account

All Pages