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Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity. The risk-free rate,
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity. The risk-free rate, is 5%; the market return, is 11%; and the firm's tax rate is 40%. Currently, Cyclone's cost of equity is 14%, which is determined by the CAPM. What would be Cyclone's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Note: if none of the following answers match your calculation, choose the closest answer. 16% 13% 17% 19%
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