Question
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
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.
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