Currently, Bloom Flowers Inc. has a capital structure consisting of 2 0 % debt and 8 0
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Question:
Currently, Bloom Flowers Inc. has a capital structure consisting of debt and equity. Blooms debt currently has an yield to maturity. The riskfree rate rRF is and the market risk premium rM rRF is Using the CAPM, Bloom estimates that its cost of equity is currently The company has a tax rate.
Blooms financial staff is considering changing its capital structure to debt and equity. If the company went ahead with the proposed change, the yield to maturity on the companys bonds would rise to The proposed change will have no effect on the companys tax rate.
What would be the companys new cost of equity if it adopted the proposed change in capital structure?
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