Question: Coffee Stop primarily sells coffee. It recently introduced a premium coffee-flavored liquor (BF Liquors). Suppose the firm faces a tax rate of 35% and collects

Coffee Stop primarily sells coffee. It recently introduced a premium coffee-flavored

Coffee Stop 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 10% of the new liquor-focused division with debt and the rest with equity, what WACC should it use for its liquor division? Assume cost of debt of 5.2%, a risk-free rate of 2.1%, and a market risk premium of 6.3%. Coffee Stop BF Liquors Beta 0.58 0.23 % Equity 96% 90% % Debt 4% 10% 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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