Question
CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 35% and collects the
CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 35% and collects the following information. If it plans to finance 15% of the new liquor-focused division with debt and the rest with equity, what WACC should it use for its liquor division? Assume a cost of debt of 4.6%, a risk-free rate of 3.1%, and a market risk premium of 5.8%.
| Beta | % Equity | % Debt | |
| CoffeeStop | 0.63 | 94% | 6% |
| BF Liquors | 0.24 | 85% | 15% |
Note: Assume that the firm will always be able to utilize its full interest tax shield.
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The Almanack Of Stanley Druckenmiller From Over 40 Years Of Investing Wisdom With Quantum Fund And Duquesne Capital Management
Authors: Rui Zhi Dong
1st Edition
B0B3NV2H9M, 979-8850611453
