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 10% 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 3.3%, and a market risk premium of 6.3%. % Equity % Debt 96% 4% CoffeeStop BF Liquors 90% 10% Note: Assume that the firm will always be able to utilize its full interest tax shield. Beta 0.62 0.25 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 25% and collects the following information. If it plans to finance 10% 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 3.3%, and a market risk premium of 6.3%. % Equity % Debt 96% 4% CoffeeStop BF Liquors 90% 10% Note: Assume that the firm will always be able to utilize its full interest tax shield. Beta 0.62 0.25 The weighted average cost of capital is %. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 10% 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 3.3%, and a market risk premium of 6.3%.
% Equity
% Debt
96%
4%
CoffeeStop
BF Liquors
90%
10%
Note: Assume that the firm will always be able to utilize its full interest tax shield.
Beta
0.62
0.25
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%2F8297f02d-2826-4207-bd17-3cdf180e89a5%2Fbe3f8fc6-8d48-45ad-ba60-3f22455be1fb%2Fqqpf7x1_processed.png&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 25% and collects the following information. If it plans to finance 10% 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 3.3%, and a market risk premium of 6.3%.
% Equity
% Debt
96%
4%
CoffeeStop
BF Liquors
90%
10%
Note: Assume that the firm will always be able to utilize its full interest tax shield.
Beta
0.62
0.25
The weighted average cost of capital is %. (Round to two decimal places.)
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