Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently

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answerhappygod
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Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently

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Currently, Forever Flowers Inc. has a capital structureconsisting of 30% debt and 70% equity. Forever's debt currently hasa 9% yield to maturity. The risk-free rate (rRF) is 3%,and the market risk premium (rM - rRF)is 8%. Using the CAPM, Forever estimates that its cost of equity iscurrently 11%. The company has a 25% tax rate.
Forever's financial staff is considering changing its capitalstructure to 40% debt and 60% equity. If the company went aheadwith the proposed change, the yield to maturity on the company'sbonds would rise to 9.5%. The proposed change will have no effecton the company's tax rate.
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