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

38 %38%

and collects the following information. If it plans to finance

11 %11%

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

4.9 %4.9%,

a risk-free rate of

2.6 %2.6%,

and a market risk premium of

5.4 %5.4%.

	Beta	% Equity	% Debt
CoffeeStop	0.610.61	96 %96%	4 %4%
BF Liquors	0.220.22	89 %89%	11 %11%