Cyclone Software Co. is trying to establish its optimal capi
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt abd 75% equity; however, the CEO believes that the firm should use more debt. The risk free rate is 5%, the market risk premium is 6% and the firms tax rate is 40%. Currently, Cyclone's cost of equity is 14%, whichis determined by the CAPM. What would be Cyclone's cost of equity if it changed its capital structure to 50% debt and 50% equity?
© BrainMass Inc. brainmass.com March 21, 2019, 9:53 pm ad1c9bdddfhttps://brainmass.com/business/capital-asset-pricing-model/cyclone-software-co-is-trying-to-establish-its-optimal-capi-395763
Solution Preview
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt abd 75% equity; however, the CEO believes that the firm should use more debt. The risk free rate is 5%, the market risk ...
Solution Summary
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt abd 75% equity; however, the CEO believes that the firm should use more debt. The risk free rate is 5%, the market risk premium is 6% and the firms tax rate is 40%. Currently, Cyclone's cost of equity is 14%, whichis determined by the CAPM. What would be Cyclone's cost of equity if it changed its capital structure to 50% debt and 50% equity?