Bloom Software Co. is trying to estimate its optimal capital structure. Blooms current capital structure consists of 25% debt and 75% equity; however, management believes the firm should use more debt. The risk-free rate is 4%, the market risk premium is 8% and the firms tax rate is 35%. Currently, Blooms cost of equity is 20%

What is Blooms current beta factor?

A. b = 2.0

B. b = 1.6

C. b = 4.0

D. b = 3.0

What is Blooms business risk?

A. b = 2.46

B. b = 1.64

C. b = 3.28

D. b = 1.31

What would Blooms beta factor if it were to change its capital structure to 50% debt and 50% equity

A. b = 2.29

B. b = 5.41

C. b = 2.16

D. b = 2.71

What would be Blooms estimated cost of equity with the new capital structure?

A. 21.3%

B. 22.3%

C. 25.7%

D. 47.3%