You are a management accountant working for Bentleys Tasmania and you report to Robin Allardice, the chief financial

officer (CFO). At the last board meeting, it was stipulated that the minimum required retum on all projects for the coming

year must be 18%. The minutes from the meeting document discussions surrounding the continued intense competition,

exchange rates and the general malaise in the economies of Bentleys' key markets as reasons for the 18% minimum retum.

The minutes also record one director as stating The high return of 18% will ensure only the best projects are accepted and

enable us to provide the superior returns our shareholders demand of us!

Robin Allardice is unhappy with the board's final decision of a minimum return of 18% and has requested that a review be

completed of Bentleys's Weighted Average Cost of Capital (WACC). Robin Allardice has stipulated that the CAPM approach

be used to estimate Robin Bentleys's cost of equity.

a) Determine Bentlevs Tasmania's weights of debt and equity for 2018. The latest financial statements show that the value of long-

term interest-bearing debt is 524,000,000. You then note the book value of equity is $245,960,000. Shareholders demand a return

on the entire Investment which includes past profits that have been reinvested on their behalf by Bentleys' management.

b)Estimate Bentleys' WACC using the following information. (Calculate to one decimal point based on book values.) To determine the costs of each source of finance, you have identified additional information that you will use to estimate Bentleys' WACC

• Bank borrowing represents an interest-only, five-year bank term loan at a fixed 7.8% interest rate until maturity, which was drawn down in January 2018 to help fund the BACTech acquisition.
• A beta of 1.10, which is consistent with proprietary financial information sources that estimate betas for listed companies.
• The market risk premium is between 4.5% and 7.0%. Based on your understanding of the return required by the shareholders of Bentleys Tasmania, you decide to base your initial WACC calculations assuming a market risk premium of 6.0%.
• The risk-free rate is 4.6%, and the company tax rate is 30%.