The board recently decided to diversify into the leisure market and to move into electric bicycles. The planning horizon for this project is four years. This project will require an immediate investment of 50 million in plant and machinery. Tax allowable depreciation is available on plant and machinery on a straight-line basis at an annual rate of 25%. Columbus finance director estimates that the plant and machinery will have zero residual value in four years.

An immedite investment in working capital of 3 million is required which will be released back in full at the end of the project.

Financial information:

Year	1	2	3	4
Sales volume (units)	50,000	70,000	100,000	120,000
Revenue per unit at todays prices				3,000
Total costs per unit at todays prices				2,500

Inflation is forecast to be 3% per annum for the foreseeable future. Tax is payable at 25% in the year in which it was incurred.

The board proposes financing the project from a mixture of equity and debt so that the existing capital structure remains unchanged. Currently the ratio of equity to debt is 60:40, i.e. 60% of the capital structure comprises equity.

The risk-free rate is 2%, the market risk is 10% and Columbus beta is 1.1.

The cost of debt before tax is 5%.

Required:

Calculate the weighted average cost of capital (WACC) with working out