Caviar Fishfarm Ltd (‘CFL’) is unlevered, has an equity beta of1.25 and unlevered cash flows of $76,800 per annum that willcontinue in perpetuity. The expected market return is 10%p.a andTreasury bills earn 2%p.a. CFL is currently considering issuing$300,000 in new debt with an 8% interest rate. CFL would repurchase$300,000 of its own shares, using the proceeds of the debt issue.There are currently 32,000 shares outstanding and the company’seffective marginal tax rate is 34%. Calculate the WACC (after tax)after the restructuring is complete.
