Note: Assume that the firm will always be able to utilize its full interest tax shield. (b)CoffeeCarts has a cost of equity of 15.4%, has an effective cost of debt of 4.2%, and is financed 71% with equity and 29% with debt. What is this firm's WACC? (c) Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.86, therisk-free rate is 3.7%, and the market risk premium is 4.8%. If your firm's project is all-equity financed, estimate its cost of capital. (d) CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 35% and collects the following information. If it plans to finance 15% 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 4.6%, a risk-free rate of 3.1%, and a market risk premium of 5.8%. Beta % Equity % Debt CoffeeStop 0.63 94% 6% BF Liquors 0.24 85% 15%
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Note: Assume that the firm will always be able to utilize its full interest tax shield.
(b)CoffeeCarts has a
(c) Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.86, therisk-free rate is 3.7%, and the market risk premium is 4.8%. If your firm's project is all-equity financed, estimate its cost of capital.
(d) CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 35% and collects the following information. If it plans to finance 15% 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 4.6%, a risk-free rate of 3.1%, and a market risk premium of 5.8%.
|
Beta |
% Equity |
% Debt |
|
|
CoffeeStop |
0.63 |
94% |
6% |
|
BF Liquors |
0.24 |
85% |
15% |
Note: Assume that the firm will always be able to utilize its full interest tax shield.
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