Convenient Stores Limited is a chain of small convenience stores located across the east coast of Australia. A new competitor has entered the market and is offering free home delivery through its online ordering platform to complement the small number of stores that it has recently opened. This combination of online and physical store presence is negatively impacting the profitability of Convenient Stores Limited. The CFO assesses that if this continues the forecast impact will result in an average reduction in the value of $350,000 over a full year and that the statistical patterns of the potential volatility, measured as the standard deviation of the value of Convenient Stores Limited, could be $600,000 per annum. The projected annual profit of Convenient Stores is $1,000,000. Convenient Stores Limited’s cost of funds is 8%pa.

What is Convenient Stores Limited Risk-Adjusted Return on Capital (RAROC: rounded to 1 decimal place)?

a. 6.6%pa

b. 5.4%pa

c. 5.2%pa

d. 6.4%pa

e. 7.9%pa