Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please help me to solve for the correct answers. thank you Excel Online Structured Activity: Recapitalization Currently, Forever Flowers Inc. has a capital structure consisting

image text in transcribed

image text in transcribed

please help me to solve for the correct answers. thank you

Excel Online Structured Activity: Recapitalization Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently has an 8% yield to maturity. The risk-free rate (TRF) is 3%, and the market risk premium ( PRPis 7%. Using the CAPM, Forever estimates that its cost of equity is currently 12%. 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. b. What is the current beta on Forever's common stock? Round your answer to two decimal places. 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. Next Rack 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 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 company's tax rate. d. 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. % e. What would be the company's new WACC if it adopted the proposed change in capital structure? Round your answer to two decimal places. f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Check My Work Reset

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield

15th edition

978-1118159644, 9781118562185, 1118159640, 1118147294, 978-1118147290

More Books

Students also viewed these Accounting questions