Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Bloom’s debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM – rRF) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate.
A. What is Bloom’s current WACC?
B. What is the current beta on Bloom’s common stock?
C. What would Bloom’s beta be if the company had no debt in its capital structure? (That is, what is Bloom’s unlevered beta, bU?)
D.
Bloom’s financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company’s bonds would rise to 9.5%. The proposed change will have no effect on the company’s tax rate.
E.What would be the company’s new cost of equity if it adopted the proposed change in capital structure?
F. What would be the company’s new WACC if it adopted the proposed change in capital structure?
G. Based on your answer to the previous question, would you advise Bloom to adopt the proposed change in capital structure? Explain.
Carry out calculations to at least 4 decimal places. Enter percentages as whole numbers. Example: 3.03% should be entered as 3.03. Do not include commas or dollar signs in numerical answers.
Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Bloom’s...
Currently, Forever Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM - rRF) is 4%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead...
Question 35 3 pts Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Bloom's debt currently has an 3.2% yield to maturity. The risk- free rate (FRF) is 3.6%, and the market risk premium (rm-rRF) įs 7.3%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.7%. The company has a 24% tax rate. Bloom's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the...
Currently, Forever Flowers Inc. has a capital structure consisting of 35% debt and 65% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM - rRF) is 6%. Using the CAPM, Forever estimates that its cost of equity is currently 14%. The company has a 25% tax rate. What is Forever's current WACC? Round your answer to two decimal places. % What is the current beta on Forever's...
Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 11.5%. The company has a 40% tax rate. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead...
Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently has an 9% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 6%. Using the CAPM, Forever estimates that its cost of equity is currently 11%. The company has a 40% tax rate. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead...
Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 9% yield to maturity. The risk-free rate (rRF) is 4%, and the market risk premium (rM - rRF) is 4%. Using the CAPM, Forever estimates that its cost of equity is currently 15%. The company has a 40% tax rate. a. What is Forever's current WACC? Round your answer to two decimal places. b. What is the current beta on...
Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 11.5%. The company has a 40% tax rate. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead...
Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (rRF) is 3%, and the market risk premium (rM - rRF) is 8%. Using the CAPM, Forever estimates that its cost of equity is currently 13.5%. The company has a 25% tax rate. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead...
Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 7% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM - rRF) is 4%. Using the CAPM, Forever estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate. What is Forever's current WACC? Round your answer to two decimal places. % What is the current beta on Forever's...
Currently, Forever Flowers Inc. has a capital structure consisting of 35% debt and 65% equity. Forever's debt currently has an 7% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 5%. Using the CAPM, Forever estimates that its cost of equity is currently 13.5%. The company has a 40% tax rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis...