Question: Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO

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?

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