Currently Forever Flowers Inc, has a capital structure.consisting of 25% debt and 75% equity Forever'sD debt currently has 9% yield to maturity. The riskfree rate is 3% and the market risk premium is 6%.D Using the CAPM, Forever estimates that its cost ofDequity is currently 11.5% The companyhas.a 25% taxrate.PLAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAADa) What is Forever's current WACC? Round to two decimal places%%Db). What is the current beta on Forever's common stock? Roundto 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 capitalI went ahead with the proposed change, the yield to maturityDstmeture to 40% debt and 60% equity. If the comparaturityon the company's bonds would rise to 10%. The proposedchange will have no effect on thetax ratecompany'sAd) What would be the company's new cost of equity if itDadopted the proposed change in capital structure? Rand youranswer to two decimal places%e) What would be the company's new WALL if it adopted theproposed change in capital structure? Round your answer to twoplaces.%9

The WACC of a company is the average return that the company provides to all its stakeholders. It is…

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. %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 7P

See similar textbooks

Similar questions

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 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…
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%
Oblib Inc. has a debt-equity ratio of 2, and a weighted average flotation cost of 4%. What is the dollar flotation cost if the company were to raise $1.5 million in the capital market? Please if you can, show all calculations
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…
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…
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
OSA Company has the following values of interest-bearing debt and common equity capital: Financing Source Dollar Amount Interest Rate Cost of CapitalShort-term loan $200,000 12%Long-term loan $200,000 14%Equity capital $600,000 22% OSI is in the 30 percent average tax bracket. A. Calculate the after-tax weighted average cost of capital for OSI. B. Given that OSI's EBIT is $300,000, compute its EVA. C. Did the venture build or destroy value? Explain. Make sure to show all the formulas and calculations in addition to any assumption needed.
eBook 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…
Gaucho Services starts life with all-equity financing and a cost of equity of 13%. Suppose it refinances to the following market-value capital structure: Debt (D) Equity (8) 418 at p = 8.6% 59% a. Use MM's proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of To 30%. b. Calculate Gaucho's after-tax weighted-average cost of capital Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. a. Return on equity b. After-tax WACC %
Here is Icknield’s market-value balance sheet (figures in $ millions): Net working capital $550 Debt $800 long term assets $2,150 Equity $1,900 value of firm $2,700 $2,700 The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 21%. Investors expect this level of debt to be permanent. a. What is Icknield’s WACC? b. How would the market-value balance sheet change if Icknield retired all its debt?
You have been tasked with the responsibility of calculating the WACC for Meeks Investments Limited and Hall Developments Limited. The risk free rateis currently 4% and the market risk premium is 6.5%. The details for both companies are presented in the table below. the tax rate is 25%. MeeksInvestments Limited Hall Developments Limited Value of Common Equity $1,500,000 $3,000,000 Beta 2.18 1.52 Value of preferred Equity $1,000,000 $500,000 Preffered Dividends 4.50 $7.60 Priceof Preffered Stock $60 $80 Price of Bonds $970 $1,160 Coupon Rate (Paid semi- annually) 8% 11% par value of bonds $1,000 $1,000 years to Maturity 8 12 Value of Debt $2,500,000 $1,500,000 Use the information in the table above to calculate the WACC for both companies