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 $6\%,$ and the market risk premium $($rM $-$ rRF$)$ is $4\%.$ Using the CAPM, Forever estimates that its cost of equity is currently $13\%.$ 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

What is Forever's current WACC? Round your answer to two decimal places.

fill in the blank $2$

$\%$

What is the current beta on Forever's common stock? Round your answer to two decimal places.

fill in the blank $3$

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.

fill in the blank $4$

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 $9\mathrm{.}5\%.$ The proposed change will have no effect on the company's tax rate.

What would be the company's new cost of equity if it adopted the proposed change in capital structure? Round your answer to two decimal places.

fill in the blank $5$

$\%$

What would be the company's new WACC if it adopted the proposed change in capital structure? Round your answer to two decimal places.

fill in the blank $6$

$\%$

Based on your answer to part e$,$ would you advise Forever to adopt the proposed change in capital structure?Recapitalization

$\%$ debt in original capital structure, wd $35\mathrm{.}00\%$

$\%$ common equity in original capital structure, wc $65\mathrm{.}00\%$

Yield to maturity on debt, rd $8\mathrm{.}00\%$

Risk$-$free rate, rRF $6\mathrm{.}00\%$

Market risk premium $($rM $-$ rRF$)4\mathrm{.}00\%$

Cost of common equity, rs $13\mathrm{.}00\%$

Tax rate $40\mathrm{.}00\%$

$\%$ debt in new capital structure, wd New $40\mathrm{.}00\%$

$\%$ common equity in new capital structure, wc New $60\mathrm{.}00\%$

Changed yield to maturity on debt, rd New $9\mathrm{.}50\%$

Current WACC calculation: Formulas

WACC #N$/$A

Current beta calculation:

Levered beta, bL #N$/$A

Unlevered beta calculation:

bU #N$/$A

Cost of equity calculation with changed capital structure:

Levered beta, bL #N$/$A

Cost of equity with new capital strucutre, rs New #N$/$A

WACC calculation with new capital structure:

WACC New #N$/$A

Recommendation on capital structure: #N$/$A