Question $4$

Assume XYZ Engineering Company Ltd now has a debt$-$to$-$equity ratio of $0\mathrm{.}3.$ Its target debt$-$to$-$equity

ratio is $0\mathrm{.}4.$ The risk$-$free rate currently is $6\%,$ and expected equity market return is $12\%.$ The XYZ

Engineering Company Ltd is considering a engineering project that has a beta of $1\mathrm{.}2.$ Assume that the

company's after$-$tax cost of debt is $7\%,$ and the applicable tax rate is $40\%.$

What is the WACC that should be used in evaluating this engineering project?

$(20$ marks$)$