CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 25% and collects the following information. If it plans to finance 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 4.8%, a risk-free rate of 3.0%, and a market risk premium of 6.0%. Beta % Equity % Debt CoffeeStop 0.61 96% 4% BF Liquors 0.26 89% 11% Note: Assume that the firm will always be able to utilize its fll interest tax shield. The weighted average cost of capital is 1.28 %. (Round to two decimal places.)

Essentials Of Investments
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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 25% and collects the
following information. If it plans to finance 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 4.8%, a risk-free rate of 3.0%, and a market risk premium of 6.0%.
% Equity
96%
Beta
% Debt
CoffeeStop
BF Liquors
0.61
4%
0.26
89%
11%
Note: Assume that the firm will always be able to utilize its full interest tax shield.
The weighted average cost of capital is 1.28 %. (Round to two decimal places.)
Transcribed Image Text:CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 25% and collects the following information. If it plans to finance 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 4.8%, a risk-free rate of 3.0%, and a market risk premium of 6.0%. % Equity 96% Beta % Debt CoffeeStop BF Liquors 0.61 4% 0.26 89% 11% Note: Assume that the firm will always be able to utilize its full interest tax shield. The weighted average cost of capital is 1.28 %. (Round to two decimal places.)
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