CONTEMP.FINANCIAL MGMT. (LL)-W/MINDTAP
14th Edition
ISBN: 9780357292877
Author: MOYER
Publisher: CENGAGE L
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Chapter 11, Problem 25P
Summary Introduction
To determine: Risk adjusted
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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.)
Chapter 11 Solutions
CONTEMP.FINANCIAL MGMT. (LL)-W/MINDTAP
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