Question: Simon Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 20% debt and 80%

  1. Simon 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. The risk-free rate is 6% and the market risk premium is 5%. Currently the companys cost of equity is 12% and its tax rate is 40%. What would be Simons estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?

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