(a)Using the following information calculate the after tax Weighted Average Cost of Capital.

There are 10 million ordinary shares. The shares last traded at $10.00 each and just recently paid a dividend of 50cents.

Over the past four years dividends have increased from 42.75 cents to the current 50 cents.

This rate of growth is expected to continue into the foreseeable future.

Bonds exist with a total face value of $60m, a market value of $60m, a coupon of 6% pa paid semi-annually and 10 years to maturity.

The corporate tax rate is 28%.

(b) What cash flow definition is consistent with this WACC and what limitations apply to the use of WACC?Explain?