Question: ERA determines the pre-tax WACC used for setting the maximum price that junior mining companies must pay for accessing the rail network of the major

ERA determines the pre-tax WACC used for setting the maximum price that junior mining companies must pay for accessing the rail network of the major mining companies in the Pilbara region. ERA has stipulated that the riskfree rate is 2.22%, that the appropriate debt ratio of a Pilbara railway is 20% and that it faces a debt risk premium of 3.70%. ERA assigns the Pilbara railway an asset beta of 1.05 and assesses the market risk premium at 7.40% and gamma at 0.40. What is the pre-tax WACC of a Pilbara railway?

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