QUESTION 3 (20 marks)

Lasco Farms is a major wheat producer in Australia. The company has 10,000,000 shares on issue. The shares trade at $2.60 each and have a beta of 0.80. The company has a small bond issue of 12,000 bonds. The bonds trade at $950 each and have a yield to maturity of 4%. The share market has an expected return of 8% and the risk-free rate is 3%. What is the weighted average cost of capital for Lasco Farms? The taxation rate is 30%.