Barnt Excavators Plc is a company trading on the stock market It is financed by investors using different methods with different returns. The summary of all of the invested capital in the company is as follows.

- Ordinary shares: 4,000,000 shares, issued at 1.10p and currently trading at 2.37p.

- Debentures: 10m trading currently at 126, with agreed returns on issue of 9%. - Preference shares: 500,000 shares issued at 5.00p and with a return fixed at issue of 6%, currently trading at 7.20p. - Bank loans: 6m at 8% interest and 4m at 8.5% interest.

The ordinary share dividend paid last year was 24p per share and this is similar to previous years. Corporation tax is 20%.

a) Calculate the weighted average cost of capital for the business (WACC).

b) The company is considering investing in two projects. Project A is expected to produce a return of 9.5% and will be funded by a new bank loan of 3m with interest of 9% Project B is expected to make a return of 7% and will be funded through the sale of 1,000,000 new shares at the current price of 2.37p.

The projects are completed and the returns are as expected. Calculate the new WACC for the business after completion. Comment on the relative merits of each of the projects in relation to the new WACC and the value of the company. Assume that share dividends remain at 24 p per share and all other investments continue as now.