QUESTION 9

You currently work within the finance department of Desla Pty Ltd, an Australian company that manufactures personal transporters. As part of your role, you are responsible for updating the Weighted Average Cost of Capital for the firm each year.

Your co-workers have compiled the following information to assist you with your calculations.

The return on risk-free Australian Government Bonds is 0.9% p.a.

Desla Pty Ltd beta is 1.9, and the expected market return is 9% p.a.

Desla Pty Ltd has 5,000,000 outstanding shares, and its shares are currently trading at $6.91 pershare.

Desla's debt is funded by a mixture of corporate bonds, and long-term bank loans:

The corporate bonds are valued at $10.5 million, and are currently trading at an annualised market yield of 8. 5%,

O The bank loans are valued at $9.5 million, and have a cost of debt of 5.4% p.a. compounded annually.

The Company's effective Tax Rate is 30%.

Compute the weighted average cost of capital for Desla Pty Ltd. Enter your answer in decimal format to Six decimal places (0. 123456 not 12.3456%).