Finney Software Co. wants to find its optimal capital structure. Its current capital structure is...
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Finney Software Co. wants to find its optimal capital structure. Its current capital structure is 30% debt and 70% equity, but the CFO hopes they can use more debt to achieve a lower cost of capital. Right now, the risk-free rate is 2%, the market risk premium is 5%, and the firm's tax rate is 20%. Using the CAPM, the company's cost of equity today is 8%. If the company changes its capital structure to 40% debt and 60% equity, what will its new cost of equity capital be using the CAPM model?
7.72%
8.85%
9.71%
10.50%
12.50%
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