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.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

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 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 21% 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 4.5%, a risk-free rate of 3.5%, and a market risk premium of 5.2%. % Debt % Equity 96% Coffee Stop BF Liquors 4% 15% 85% Note: Assume that the firm will always be able to utilize its full interest tax shield. Beta 0.61 0.29 KIE The weighted average cost of capital is%. (Round to two decimal places.)
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