Voltaire Industries Limited $($VOL$)$ is a large transportation company operating trucking

networks in each of the major capital cities in Australia. It has been in business for

more than $20$ years. The CEO of VOL, Mr David Grayville, is considering diversifying

the business into mining. Mr Grayville has asked you to calculate the company$$s cost

of capital for use as a discount rate in evaluating the purchase of a copper mine in

Western Australia. To assist you in this task you have been provided the following

information:

Extract from balance sheet

Liabilities

Debentures $($$$100$ par, $8\%$ p$.$a$.$ semi$-$annual coupon$)$ $$5,000,000$

Preference Shares $($$$1$ par, $10\%$ p$.$a$.$ cumulative$)$ $$1,800,000$

Owners$$ equity

Ordinary shares $($$$1$ par$)$ $$15,000,000$

Retained earnings $$4,500,000$

Additional information

$1.$ An interest payment in relation to the debentures has just been made, and they

mature in six years from today. The current yield on similar risk debentures in

the marketplace is $5\mathrm{.}50\%$ p$.$a$.$

$2.$ The preference shares are trading in the market at $$1\mathrm{.}60$ and a dividend has

just been paid.

$3.$ Forecasts in relation to market returns are as follows: expected rate on $10-$year

Commonwealth Bonds $=4\mathrm{.}25\%$ p$.$a$.$ compunded annually; expected return on

the market portfolio $($including franking credits$)=12\mathrm{.}0\%$ p$.$a$.$ compounded

annually; and the systematic risk of VOL ordinary shares is the same as the

market portfolio$$s systematic risk.

$4.$ The ordinary shares are trading on the market at $$1\mathrm{.}25$ each.

$5.$ The company tax rate is $30\%.$

$6.$ VOL operates in an imputation tax system.

$7.$ The ordinary share and preference share dividends are fully franked.

What is the after tax weighted average cost of capital $($WACC$)$ of Voltaire

Industries Limited?