In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar-maturity Treasuries had a yield of 3 %. Suppose the market risk premium is 5 % and you believe Rite Aid's bonds have a beta of 0.31. The expected loss rate of these bonds in the event of default is 60 %.

A. In mid-2015 WholeFoods decides to expand their operations into the pharmacy sector. As a comparable company, the CEO of WholeFoods has identified Rite Aid, which currently has a Debt-to-Equity Ratio of 3. WholeFoods stock price is $20 per share, with 15 million shares outstanding. It also has $100 million in outstanding corporate debt, with an average credit rating of A- and a debt beta of 0.05 (WholeFoods plans to maintain the same capital structure going forward). Find the appropriate after-tax WACC for WholeFoods expansion project if the company will be subject to a 25% corporate tax rate.

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