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

To assist in the evaluation process Natural Convenience 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:

Natural Convenience issued 280,000 14-year debentures at par six years ago, each with a face value of $1,000. The debentures offer a coupon of 4% per annum, paid annually. Investors currently require a 7% rate of return on investments of similar risk to Natural Conveniences debentures. The $3.50 preferred stock of Natural Convenience has a total market value of $73,850,000 as of today, with each stock currently trading at $31.11 per share. There are 135 million shares of common stock outstanding. Natural Convenience currently pays a dividend of $0.18 per share, with investors expecting dividends to grow at a rate of 4% per annum into perpetuity. The beta of Natural Convenience is currently the same as the market portfolio, with the expected return on the market portfolio being 16%, and the risk-free rate being 3% per annum. Q1 Assuming the marginal tax rate to be utilized for the evaluation process is 30%, what is Natural Conveniences WACC? Q2 Determine which of the following proposed new shopping centre developments should be accepted by Natural Convenience. Please consider the firms WACC as calculated in Part a) and explain why any project/s should be accepted.

\begin{tabular}{lcr} Project & State & Expected return \\ \hline Springwood & QLD & 12% \\ \hline Richmond & NSW & 11% \\ \hline Castle Hill & NSW & 8% \\ \hline Forest Lake & QLD & 6% \\ \hline \end{tabular}