work in excel.

Problem 3 (15 points): Simon Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital stracture that consists of 20 percent debt and 80 percent equity, based on market values (its D/S ratio is 0.25.) The risk-free rate is 6 percent and the market risk premium, TMRF, is 5 percent. Currently the company's cost of equity, which is based on the CAPM, 12 percent and its tax rate is 40 percent *) (5 points) What is Simon's levered beta? (Hint: Use the CAPM equation) b) (5 points) What is Simon's unlevered beta? (Hint: Use the Hamada equation) c) (5 points) What would be Simon's estimated cost of equity if it were to change its capital structure to 50 percent debt and 50 percent equity? (Hint: Use the Hamada equation to re-lever the beta and the CAPM equation to find the new cost of equity)