CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 40% and collects the following information. If it plans to finance 13% 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 5.1%, a risk-free rate of 3.2%, and a market risk premium of 6.5%. Beta % Equity % Debt CoffeeStop BF Liquors 0.61 95% 5% 0.23 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.)
CoffeeStop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 40% and collects the following information. If it plans to finance 13% 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 5.1%, a risk-free rate of 3.2%, and a market risk premium of 6.5%. Beta % Equity % Debt CoffeeStop BF Liquors 0.61 95% 5% 0.23 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.)
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 25P
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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 40% and collects the following
information. If it plans to finance 13% 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 5.1%, a risk-free rate of 3.2%, and a market risk premium of 6.5%.
Beta
% Equity
% Debt
CoffeeStop
BF Liquors
0.61
95%
5%
0.23
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.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1ea199ac-d9f9-432f-8dc8-6b9e2b6778a5%2F23882605-b537-4501-9a72-5ee54c70e3ed%2Fi3f5yjp_processed.jpeg&w=3840&q=75)
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 40% and collects the following
information. If it plans to finance 13% 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 5.1%, a risk-free rate of 3.2%, and a market risk premium of 6.5%.
Beta
% Equity
% Debt
CoffeeStop
BF Liquors
0.61
95%
5%
0.23
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.)
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