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  3. currently, bloom flowers inc. has a capital struct

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

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Accounting

Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Blooms debt currently has an 3.3% yield to maturity. The risk-free rate (rRF) is 2.5%, and the market risk premium (rM rRF) is 7.9%. Using the CAPM, Bloom estimates that its cost of equity is currently 12%. The company has a 26% tax rate.
Blooms 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 companys bonds would rise to 9.2%. 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? Report answer to the four decimal places.

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