Due to the growing trend of Australians moving further away from the central business districts of capital cities, Westfield Corporation Limited is considering a number of new independent shopping centre developments in outer city suburbs around Australia.

To assist in the evaluation process Westfield Corporation Limited is required to estimate its after-tax weighted average cost of capital (WACC). The firm believes its current capital structure is optimal, utilizing a combination of fixed and variable income securities.

The following information relating to all outstanding securities is currently available:

• Westfield Corporation Limited issued 500,000 18-year debentures at par seven years ago, each with a face value of $1,000. The debentures offer a coupon of 5% per annum, paid annually. Investors currently require an 4% rate of return on investments of similar risk to Westfield Corporation Limiteds debentures.
• The $1.20 preferred stock of Westfield Corporation Limited has a total market value of $83,750,000 as of today, with each stock currently trading at $23.70 per share.

• There are 60 million shares of common stock outstanding. Westfield Corporation Limited currently pays a dividend of $0.85 per share, with investors expecting dividends to grow at a rate of 4% per annum into perpetuity. The beta of Westfield Corporation is the same as the market portfolio, while the expected return on the market is 14%, and the risk-free rate is currently 2% per annum.

Required:

1. Assuming the marginal tax rate to be utilized for the evaluation process is 30%, what is Westfield Corporation Limiteds WACC?
2. Determine which of the following proposed new shopping centre developments should be accepted by Westfield Corporation Limited. Please consider the firms WACC as calculated in Part a) and explain why any project/s should be accepted.

3. Project	State	Expected return
   Springwood	QLD	12%
   Richmond	NSW	9%
   Castle Hill	NSW	6%
   Forest Lake	QLD	5%