Currently, Forever Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Forever's debt currently has an 9% yield to maturity. The risk-free rate (TRF) is 3%, and the market risk premium (rm- TRF) is 6%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forever's current WACC? Round your answer to two decimal places. 12.68 % b. What is the current beta on Forever's common stock? Round your answer to two decimal places. 1.92 c. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, bu?) Do not round intermediate calculations. Round your answer to two decimal places. 1.67 Forever'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 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? Do not round intermediate calculations. Round your answer to two decimal places. 10.16 %

Currently, Forever Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Forever's debt currently has an 9% yield to maturity. The risk-free rate (TRF) is 3%, and the market risk premium (rm- TRF) is 6%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forever's current WACC? Round your answer to two decimal places. 12.68 % b. What is the current beta on Forever's common stock? Round your answer to two decimal places. 1.92 c. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, bu?) Do not round intermediate calculations. Round your answer to two decimal places. 1.67 Forever'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 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? Do not round intermediate calculations. Round your answer to two decimal places. 10.16 %

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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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…
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 (rr) is 5%, and the market risk premium (rm- TRF) is 8%. Using the CAPM, Forever estimates that its cost of equity is currently 12.5%. 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 to answer the questions below. Do not round intermediate calculations. Open spreadsheet a. What is Forever's current WACC? Round your answer to two decimal places. 11.925 % b. What is the current beta on Forever's common stock? Round your answer to two decimal places. 1.21 c. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, bu?) Round your answer to two decimal places. 1.00 X Forever's financial staff is considering changing its capital structure to 40% debt…
Recapitalization % debt in original capital structure, Wa % common equity in original capital structure, wc Yield to maturity on debt, ra Risk-free rate, IRF Market risk premium (™M - RF) Cost of common equity, rs Tax rate % debt in new capital structure, Wd New % common equity in new capital structure, Wc New Changed yield to maturity on debt, rd New Current WACC calculation: WACC Current beta calculation: Levered beta, b₁ Unlevered beta calculation: bu Cost of equity calculation with changed capital structure: Levered beta, b₁ Cost of equity with new capital strucutre, rs New WACC calculation with new capital structure: WACC New Recommendation on capital structure: 35.00% 65.00% 9.00% 6.00% 4.00% 11.00% 40.00% 40.00% 60.00% 10.00% Formulas #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Currently, Bloom Flowers Inc. has a capital structure consisting of20% debt and 80% equity. Bloom's debt currently has an 8% yield to maturity. The risk-free rate (rgr) is 5%, and the market risk premium (ry ~ rer) is 6%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate.a. Whatis 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, by?)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.d. What would be the company’s new cost of equily if it adopted the proposed change in capital structure?e. What would be the company’s new WACC if it adopted the proposed change…
Caddy manufacturing has a target debt equity ratio of .45. Its cost of equity is 10.3%, and its pre- tax cost of debt is 6.4%. If the tax rate is 21%, what is the company's WACC ? Pls type in computer! Thanks
Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently has an 7% yield to maturity. The risk-free rate (rRF) is 4%, and the market risk premium (rM - rRF) is 5%. Using the CAPM, Forever estimates that its cost of equity is currently 13%. 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 common stock? Round your answer to two decimal 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, bU?) Do not round intermediate calculations. Round your answer to two decimal places. Forever'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…
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.6 percent annually. What is the company's pretax cost of debt? If the tax rate is 24 percent, what is the aftertax cost of debt? Pretax cost of debt: __________% Aftertax cost of debt: __________%
Company Y has a target debt to equity ratio of 50%. Currently its book debt to equity ratio is 60% and it expects to revert to the target ratio very soon. The company has an after-tax market cost of debt of 9% and a market cost of equity of 20%. What is the WACC for the company?
Battlefield is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 113% of face value. The issue makes semiannual payments and has an embedded coupon payment of 6.4% annually. If the tax rate is 38%, what is the aftertax cost of debt? 2.01 2.76 2.63 1.89 1.82
Harmony Sego has a tax rate of 21%, the interest rate on debt is 10%, and the WACC is 15%. If the debt ratio is 60% (i.e., the weight on debt), what is the expected rate of return to equity holders? O 12.50% O 22.50% O 25.65% O 21.25%
Use the following information to compute the weighted average cost of capital (WACC) of GoGo Inc. ▪ Debt information: The beta of GoGo Inc. stock is 1.5 . Risk-free rate is 4% • Market return is 15% • GoGo's capital structure is 65% equity and 35% debt. The tax rate is 21%. 14.62% Bonds will mature in 9 years. The maturity value is $1,000. GoGo's WACC is.. 15.47% The coupon rate is 8%, with semiannual payments. The current bond price is $1,015. 12.20% 13.32%
Suppose that LilyMac Photography expects EBIT to be approximately $94,000 per year for the foreseeable future, and that it has 400 10-year, 4 percent annual coupon bonds outstanding. (Use Table 11.1) What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac's WACC? Tax rate Mc. Type here to search 7730

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