Sasha Pty Ltd is a small company based in San Diego in the state of California in the United States. Management is considering a rapid expansion of its operations in the near future. The chief financial officer believes that discounted cashflow techniques are the best suited appraisal methods for their new projects. The most recent statement of financial position $($formerly balance sheet$)$ for Sasha is given below as follows:

Authorised share capital $(15000000$ shares at $50$c each$)$

$

Issued share capital $(10000000$ shares at $50$c$)5000000$

Share premium $2340000$

Revaluation reserve $1610000$

Retained income $4615000$

Shareholders$$ funds $13565000$

$

$12\%$ irredeemable debentures $2500000$

$10\%$ redeemable debentures $2000000$

$14\%$ long$-$term loan $3000000$

$7500000$

The shares of Sasha Pty Ltd have a current market value of $$1\mathrm{.}56$ cum div. A dividend of $18$ cents is due to be paid shortly. All debt interest is paid annually in arrears and has just been paid. Sasha has been growing at a rate of $5\%.$ The CFO believes the company will be able to maintain this growth rate for the foreseeable future.

The $12\%$ debentures have a market value that is $80$ per cent of the book value. The $10\%$ debentures are to be redeemed in eight years$$ time at $$95$ per $$100$ nominal. The company has a current market required return of $16\mathrm{.}67$ per cent before tax. The $14$ per cent loan is not traded on the open market, but its effective pre$-$tax cost has been estimated at $18$ per cent. It is redeemable at par in three years$$ time.

Sasha has a tax rate of $40$ per cent.

Required:

a$)$ Calculate the after$-$tax WACC of Sasha Pty Ltd$.(28$ marks$)$

b$)$ Outline the fundamental assumptions underlying the use of WACC as a discount within the context of Sasha Pty Ltd$.(12$ marks$)$