36. Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity....

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36. Currently, Bloom Flowers Inc. has a capital structureconsisting of 20% debt and 80% equity. Bloom’s debt currently hasan 8.5% yield to maturity. The risk-free rate (rRF) is 4.3%, andthe market risk premium (rM – rRF) is 7%. Using the CAPM, Bloomestimates that its cost of equity is currently 16%. The company hasa 33% tax rate. Bloom’s financial staff is considering changing itscapital structure to 40% debt and 60% equity. If the company wentahead with the proposed change, the yield to maturity on thecompany’s bonds would rise to 9.1%. The proposed change will haveno effect on the company’s tax rate. What would be the company’snew cost of equity if it adopted the proposed change in capitalstructure? Carry out calculations with complete accuracy and reportanswers to four decimal places.

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36. Currently, Bloom Flowers Inc. has a capital structureconsisting of 20% debt and 80% equity. Bloom’s debt currently hasan 8.5% yield to maturity. The risk-free rate (rRF) is 4.3%, andthe market risk premium (rM – rRF) is 7%. Using the CAPM, Bloomestimates that its cost of equity is currently 16%. The company hasa 33% tax rate. Bloom’s financial staff is considering changing itscapital structure to 40% debt and 60% equity. If the company wentahead with the proposed change, the yield to maturity on thecompany’s bonds would rise to 9.1%. The proposed change will haveno effect on the company’s tax rate. What would be the company’snew cost of equity if it adopted the proposed change in capitalstructure? Carry out calculations with complete accuracy and reportanswers to four decimal places.