Solved: What would be cyclone cost of equity, Finance Basics

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What would be cyclone cost of equity

Problem: 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%, which is determined by the CAPM. What would be Cyclone's cost of equity if it changed its capital structure to 50% debt and 50% equity?

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