Currently Forever Flowers Inc. has a capital structure. consisting of 25% debt and 75 y, equity. Forever's debt currently has 9%. yield to maturity. The risk free rate is 3% and the market risk premium is 6% Using the CAPM, Forever estimates that its cost of equity is currently 11.5% The company has a 25%. tax rate. a) What is Forever's current WACC? Round to two decimal plauces % b). What is the current beta on Forever's common stack? Rand to two decimal places. () What would Forever's beta be if the company had no debt i in its capital structure? (That is, what is Forever's unlevered beta) Round your answer to two decimal places. -Forever's financial staff is considering changing it capital structure to 40% debt and 60% equity. If the comparay wort ahead with the proposed change, the yield to maturity. on the company's bands would rise to 10%. The proposed change will have no effect on the company's tax rate. d) what would be the company's new cost of equity if it adopted the proposed change in capital structure? Rand your answer to two decimal places e) What would be the company's new WALL if it adopted the proposed change in capital structure? deamal answer to two places. %
Currently Forever Flowers Inc. has a capital structure. consisting of 25% debt and 75 y, equity. Forever's debt currently has 9%. yield to maturity. The risk free rate is 3% and the market risk premium is 6% Using the CAPM, Forever estimates that its cost of equity is currently 11.5% The company has a 25%. tax rate. a) What is Forever's current WACC? Round to two decimal plauces % b). What is the current beta on Forever's common stack? Rand to two decimal places. () What would Forever's beta be if the company had no debt i in its capital structure? (That is, what is Forever's unlevered beta) Round your answer to two decimal places. -Forever's financial staff is considering changing it capital structure to 40% debt and 60% equity. If the comparay wort ahead with the proposed change, the yield to maturity. on the company's bands would rise to 10%. The proposed change will have no effect on the company's tax rate. d) what would be the company's new cost of equity if it adopted the proposed change in capital structure? Rand your answer to two decimal places e) What would be the company's new WALL if it adopted the proposed change in capital structure? deamal answer to two places. %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Concept explainers
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
100%
Transcribed Image Text:Currently Forever Flowers Inc, has a capital structure.
consisting of 25% debt and 75% equity Forever's
D debt currently has 9% yield to maturity. The risk
free rate is 3% and the market risk premium is 6%.
D Using the CAPM, Forever estimates that its cost of
Dequity is currently 11.5% The company
has.
a 25% tax
rate.
PL
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
Da) What is Forever's current WACC? Round to two decimal places
%%
Db). What is the current beta on Forever's common stock? Round
to two clecional places
() What would Forever's beta be if the company had no debt,
in its capital structure? (That is, what is Forever's unlevered beta)
your answer to two decimal places.
Round
▷ Forever's financial staff is considering changing it capital
I went ahead with the proposed change, the yield to maturity
Dstmeture to 40% debt and 60% equity. If the comparaturity
on the company's bonds would rise to 10%. The proposed
change will have no effect on the
tax rate
company's
Ad) What would be the company's new cost of equity if it
Dadopted the proposed change in capital structure? Rand your
answer to two decimal places
%
e) What would be the company's new WALL if it adopted the
proposed change in capital structure? Round your answer to two
places.
%
9
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