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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
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 13% of the now 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 6.1% CoffeeStop BF Liquors Beta 064 0.25 % Equity % Debt 4% 13% 90% 87% Note: Assume that the firm will always be able to utilize its full interest tax shield The weighted average cost of capital is %. (Round to two decimal places.)
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