Weighted Average Cost of Capital Hinkle plc is a retail steel company based in the West Midlands. The company has recently been approached with an investment opportunity. This investment is thought to have a beta of 2.2. The following financial information is from the companys balance sheet as of December 31st, 2020. Hinkle currently values its equity at 2.5 million and its debt at 1.5 million. The cost of debt is 4% and the rate of corporation tax is 20%. The current yield on government bonds is 4% and the return on the market is 6%.

Required:

(a)Calculate the WACC for Hinkle (10marks)

(b)Discuss any limitations of WACC and why it may lead to difficulties when applied by Hinkle in investment appraisal in the years ahead (10marks)