CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the...
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Finance
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 14% 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 4.7%,
a risk-free rate of 3.2%, and a market risk premium of 5.7%.
| Beta | % Equity | % Debt | |
| CoffeeStop | 0.63 | 95% | 55% |
| BF Liquors | 0.28 | 86% | 14% |
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.)
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