Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

/Test Score: 0 of 1 pt 23 of 26 (0 completo) HW Score: 0%, 0 of 26 pts P 13-23 (similar to) Question Help Coffee

image text in transcribed
image text in transcribed
/Test Score: 0 of 1 pt 23 of 26 (0 completo) HW Score: 0%, 0 of 26 pts P 13-23 (similar to) Question Help Coffee Stop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors) Suppose the firm faces a tax rate of 21% and collects the following information. If it plans to finance 13% of the new liquor-focused division with debit 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 2.7%, and a market nok premium of 5.5% Beta % Equity % Debt CoffeeStop 0.63 94% 0.26 87% 13% 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) 6% BF Liquors rretto 24 of 26 (0 complete) HW Score: 0%, 0 of 26 pts P 13-24 (similar to) Question Help Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Hewlett Packard is very similar to your computer division, in terms of both risk and financing. You go online and find the following information Hewlett Packards beta is 118, the risk-free rate is 4.4%, its market value of equity is $67.8 billion, and it has $697 million worth of debt with a yold to maturity of 61%. Your tax rate is 22% and you use a market risk premium of 5.9% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division b. If your overall company WACC is 12.8% and the computer sales division represents 45% of the value of your fim, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield a. What is an estimate of the WACC for your computer sales division? The weighted average cost of capital for your computer sales division is % (Round to two decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions