CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of

40%

and collects the following information. If it plans to finance

14%

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

3.5%,

and a market risk premium of

6.9%.

	Beta	% Equity	% Debt
CoffeeStop	0.59	96%	4%
BF Liquors	0.26	86%	14%

Note: Assume that the firm will always be able to utilize its full interest tax shield.