Vantage Powerboats Limited (VPL) manufactures luxury fibreglass power boats, for both the domestic New Zealand market and for export and is considering a proposal to purchase a new automated plant for its production process which will radically reduce the time for manufacturing these craft. The plant will cost $25 million plus a further $200,000 investment in inventory at the start of the project and is expected to last for seven years before it needs replacing. The new plant is expected to generate an additional $15 million per year in revenues in its first year and achieve a growth rate in revenues of 10% for the next two years, flattening out at 5% for the remainder of the plant's life. Variable costs are projected to be 40% of sales in the first year, growing at a constant rate of 4% thereafter and annual fixed costs (excluding depreciation of $2.5 million are anticipated. The new plant would be depreciated on a straight-line basis over the seven years to a residual value of $5 million. This new investment proposal that may change the way luxury pleasure-boats are built, is very promising but carries a great deal more risk than current technology used by the company. Expected returns for similar projects adopted by VPL's competitors in the boating industry are around 15% p.a. The company's latest balance sheet shows a long-term debt of $40 million and shareholders' funds of $80 million. VPL issued 10-year bonds exactly 4 years ago, each with a face value of $1,000 and an annual coupon rate of 8%. The bonds are currently trading at a yield of 7.0% p.a. VPL has 30 million shares on issue and the current share price is $3.00. The company's share beta is 1.20, the risk-free rate is estimated to be 5% p.a., the market risk premium is estimated at 7.5% p.a., and the company tax rate is 28% Victor Peters the company's production manager has asked your finance team to complete a financial analysis for the investment. He will make a recommendation to the board of directors based on your analysis and report. a) Determine VPL's weighted average cost of capital (WACC)