Problem 14-8 Hamada equation

Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes the firm should use more debt. The risk-free rate, r_RF, is 5%; the market risk premium, RP_M, is 6%; and the firm's tax rate is 40%. Currently, Cyclone's cost of equity is 15%, 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? Round your answer to two decimal places.

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