eBook Problem Walk$-$Through

Situational Software Co$.($SSC$)$ is trying to establish its optimal capital structure. Its current capital structure consists of $40\%$ debt and $60\%$ equity; however, the CEO believes that the firm should use more debt. The risk$-$free rate, rRF$,$ is $6\%$; the market risk premium, RPM$,$ is $6\%$; and the firm's tax rate is $25\%.$ Currently, SSC$\text{'}$s cost of equity is $15\%,$ which is determined by the CAPM. What would be SSC$\text{'}$s estimated cost of equity if it changed its capital structure to $50\%$ debt and $50\%$ equity? Do not round intermediate calculations. Round your answer to two decimal places.

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