(a) You are provided with the following information on spangle Ltd: There are 60 million ordinary shares. The shares will pay a dividend of 80 cents at the end of the year. The dividend is expected to grow at 2% p.a. indefinitely. spangle's beta is 1.2, the risk-free rate is 4% The return on the market is 12% spangle has 1.5 million bonds with a return of 2% above the risk-free rate. The bonds are currently trading at $85. The company tax rate is 30%. a. Calculate spangle Ltds WACC. Show all your workings.

(b) Noosa Ltd is in the same industry as spangle Ltd but is located in a tropical area that often faces flooding. Noosa Ltd is not a listed firm and it needs to calculate its WACC. The CFO of Noosa Ltd says that they should use a different beta from Spangle Ltd in their calculations because of their location. Specifically, the frequent floods make it more likely that Noosa Ltds assets will be damaged. Explain what effect this flooding should have on Noosa Ltds beta.