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What would be simon estimated cost of equity

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Reference no: EM132729741

Problem 1: Dabney Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 20% debt and 80% equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 9% and the market risk premium, rM - rRF, is 7.5%. Currently the company's cost of equity, which is based on the CAPM, is 18% and its tax rate is 40%. What would be Simon's estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?

Reference no: EM132729741

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