Questions 13 and 14 rely on the following information

Handley Ltd is a firm that up until now has been involved in the manufacturing of plastic bottles used by milk distributors. It is considering pivoting towards producing wifi-enabled lighting systems and wants your help to estimate its after-tax weighted average cost of capital in order to assess the viability of this strategy.

Handley Ltd currently have a debt-to-equity ratio of 0.6. They also have two sources of debt, commercial bills and long-term bonds, which, in aggregate, are each equivalent in market value to each other. The current yield on the commercial bills is 3.7% p.a. and the yield on the bonds is 4.1% p.a. The risk-free interest rate is estimated to be 3% p.a., the market risk premium 5.5% p.a. and the current beta of Handley Ltd shares is 0.7. The relevant corporate tax rate is 30%.

13. Estimate the after-tax WACC of Handley Ltd (in percentage terms to two decimal places e.g. 10.03%)

14. In no more than 3 lines explain whether it is appropriate for the company to use its WACC as a benchmark rate in assessing this new project.