Question
9. Simon Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 40 percent debt
9. Simon Software Co. is trying to estimate its optimal capital structure.
Right now, Simon has a capital structure that consists of 40 percent debt and 60 percent equity, based on market values. (Its D/S ratio is 2/3) The risk-free rate is 6 percent and the market risk premium, IM - IRF, is 5 percent. Currently the company's cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. 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?
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Port Infrastructure Finance
Authors: Hilde Meersman, Eddy Van De Voorde, Thierry Vanelslander
1st Edition
0415720060, 978-0415720069
