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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 40% 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 40% and collects the following information. If it plans to finance 10% 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 5.4%, a risk-free rate of 3.5%, and a market risk premium of 5.7%.

Beta

% Equity

% Debt

CoffeeStop

0.62

94 %

6%

BF Liquors

0.26

90%

10 %

The weighted average cost of capital is?

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