3. Assume that the current date is 28 February 2019 Reden Packaging plc (RP) is a UK listed manufacturer. It has a financial year-end of 28 February. The company started trading in 1996, making a limited range of bespoke plastic acquisition of other companies. It now supplies plastic bags and bottles to manufacturers across Europe, mainly in the food, chemicals and agricultural sectors. There is public concern with the environmental impact of plastic products. In response, RP's board is investigating the possible purchase of the entire share capital of GreenGreen Ltd (GreenGreen), a manufacturer of glass bottles and paper bags and wrapping. It would cost RP 13 million to purchase GreenGreen. Minutes taken at RP's most recent board meeting included the following comment made by Josie Hatton, RP's production director: "If we are to proceed with our appraisal of the investment in GreenGreen then we should make sure that we use an accurate hurdle rate in our NPV calculations. We've been using a cost of capital figure of 8% for at least three years now. The danger here is that by using a hurdle rate that's too high or too low we will be destroying shareholder wealth. Surely our objective is to maximise shareholder wealth?" You work in RP's finance team and have been asked to advise the board on a suitable cost of capital for appraising the possible GreenGreen investment. Extracts from RP's most recent management accounts are shown below: Balance sheet as at 28 February 2019 Note The 5% debentures are redeemable at par on 28 February 2022 . RP's ordinary dividend has been increasing at a steady rate over the past five years. In 2014 the ordinary dividend per share was 0.735. There have been no changes to the number of ordinary shares in issue since 2014. If RP were to purchase GreenGreen's shares it would raise the necessary funds via the issue of both ordinary shares and 8% redeemable debentures. The funds would be raised in such a way as to preserve RP's existing gearing ratio (equity:debt by market values). Assume that the corporation tax rate will be 17% for the foreseeable future. The UK debentures are making payments annually with a par value of 100. Requirements Determine an appropriate WACC that RP could use when appraising the 13 million investment in GreenGreen and explain the reasoning behind your approach