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Problem 13.08
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HAMADA EQUATION
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current
capital structure consists of 30% debt and 70% equity; however, the CEO believes that the
firm should use more debt. The risk-free rate, rRF, is 5%; the market risk premium, RPM, is
6%; 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.
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Problem 13.08
ail Instructor
? Question 10 of 11