1. CoffeeStop primarily sells coffee. They are currently creating a new division to produce a premium coffee-flavored liquor. Suppose the firm faces a tax rate of 21% and collects the following information for their firm and for BF Liquors, a comparable firm in the alcoholic beverages sector:

	Beta	%Equity	%Debt
CoffeeStop	1.06	96%	4%
BF Liquors	0.86	89%	11%

CoffeeStop plans to finance 11% of their new liquor-focused division with debt and the rest with equity. What discount rate should they use for evaluation of their new division? Assume a risk-free rate of 3%, a market risk premium of 6%, and a credit default spread on their new debt of 1.8%.