G Communications is considering making a change to its capital structure to reduce its cost of capital and increase firm value. Right now, Global has a capital structure that consists of 20% debt and 80% equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 6% and the market risk premium, rM rRF, is 5%. Currently the company's cost of equity, which is based on the CAPM, is 12% and its tax rate is 40%.

a. What would be Gs estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?

b. What is the importance of capital structure to a company and why?