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Unformatted text preview: (unlevered beta)? .05 +.06B = .10 B = .833 The companys financial staff is considering changing its capital structure to 40 percent debt and 60 percent equity. If the company went ahead with the proposed change, the yield to maturity on the companys bonds would rise to 9.5 percent. The proposed change will have no effect on the companys tax rate. 4. What would be the companys new cost of equity if it adopted the proposed change in capital structure? (.4)(.095)(1-.4) + .6X = 10.96% X = 14.46% 5. What would be the companys new WACC if it adopted the proposed change in capital structure? .4(.095)(.6) + .6(.1446) = 10.96% 6. Based on the answer in #5, would you advise Bloom to adopt the proposed change in capital structure? Why? Yes I would because it improves the return on equity...
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