A firm currently at 25% debt and 75% equity is deciding about its optimal capital structure. The managers believe taking on more debt would be beneficial given the firms risk-free rate of 4% and the market risk premium of 5% along with the tax rate of 40%. If they can currently raise equity with the cost of 12% then determine the cost of equity if capital structure is changed to 40% debt and 60% equity? Give your suggestions on optimal capital structure.