Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, r_RF, is 5%; the market risk premium, RP_M, is 7%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 16%, which is determined by the CAPM.

What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Round your answer to two decimal places. Do not round intermediate steps.

Hamada equation Original \% debt in capital structure, wd Original % common equity in capital structure, wc Risk-free rate, rRF Market risk premium, RPM Tax rate, T Firm's cost of equity, r5 Calculation of firm's current beta: Firm's current beta, bL Calculation of firm's unlevered beta: Firm's unlevered beta, bu New % of debt in capital structure, wd New New % of common equity in capital structure, wc New Calculation of firm's new beta: Firm's new beta, b bLNew 25.00% 75.00% 5.00% 7.00% 40.00% 16.00% Calculation of firm's new cost of equity: Firm's new cost of equity, r5 New