Evergreen Inc. currently has a financial structure that consists of 25% debt and 75% stock. The debt of Evergreen presently has a yield to maturity of 7%. The risk-free rate (rRF) ias, while the market risk premium (rM - rRF) is 7. Evergreen's cost of equity is now estimated to be 14.5 percent using the CAPM. The corporation is taxed at a rate of 40%. Determine: the WACC of Evergreen at the moment? the beta of Evergreen's common stock right now? Evergreen's beta be if the company's capital structure didn't include any debt? (Or, to put it another way, what is Evergreen's unlevered beta, bU?)

The finance team at Evergreen is exploring switching to a capital structure of 40% debt and 60% equity. The ytm bonds would increase to 10.5 percent if the proposed modification was implemented. The proposed modification will have no impact on the tax rate of the business.

If the proposed capital structure adjustment were implemented, what would the company's new cost of equity be?

If the suggested capital structure modification were implemented, what would be the company's new WACC?

Answer rating: 100% (QA)

To calculate Evergreen Incs weighted average cost of capital WACC we need to consider the current fi... View the full answer