1. Lufthansa Airways studies and evaluates an expansion project where the calculation of the WACC is required. Lufthansa is currently financed by debt, preference capital and ordinary equity. The firm faces a company tax rate of 35%. The following information is available.

Debt: The firm currently has 35,000 bonds on issue. The current market value of each bond is $1020, the before tax cost of issuing new bonds would be 6% per annum.

Preference Capital: The firm currently issued 500,000 preference shares. The fixed amount of preferred dividends is $7, and the value of each preferred share is $70.

Ordinary Capital: 7,000,000 ordinary shares are currently on issue and the current ordinary share price is $25 per share. The company beta is 2, the risk free rate of return is 1.5% and the return on market portfolio (Rm) is 7%

Given the above information, find the weighted average cost of capital for Lufthansa.