Question: Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 40% debt and 60% equity; however, the

Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 40% debt and 60% equity; however, the CEO belleves that the firm should use more debt. The risk-free rate, FRF, is 4%; the market risk premium, RPM. Is 6%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 13%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. x1 Rren spreadsheet 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. % B c D ET Hamada equation Original % debt in capital structure, Wa Original % common equity in capital structure, W. Risk-free rate, TRE Market risk premium, RPM Tax rate, T 3 Firm's cost of equity, 40.00% 60.00% 4.00% 6.00% 40.00% 13.00% Formulas #N/A 0 Calculation of firm's current beta: 1 Firm's current beta, bu 2 Calculation of firm's unlevered beta: 14 Firm's unlevered beta, bu #N/A 50.00% 50.00% 116 New% of debt in capital structure, Wd New 17 New% of common equity in capital structure, We Now 18 19 Calculation of fimm's new beta: 20 Firm's new beta, D. Now 21 22 Calculation of fimm's new cost of equity: 23 Firm's new cost of equity. Is New AN/A #N/A

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