Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of

Question:

Cyclone Software Co. is trying to establish its optimal Its current consists of 25% debt and 75% 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 6%; and the firm’s tax rate is 40%. Currently, Cyclone’s is 14%, which is determined by the CAPM. What would be Cyclone’s estimated if it changed its to 50% debt and 50% equity?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...