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Question - Anggun Bhd is a company with a capital structure of 40% debt and 60% equity. The company is planning to invest in a new project that is significantly different from its existing business operations. Anggun Bhd has identified Jelita Bhd, a company with business operation similar to the proposed new investment. Jelita Bhd's capital structure consists of 35% debt and 65% equity. The equity beta of Jelita Bhd is 0.61.
The risk-free rate of return is 5% per year and the equity risk premium is 7% per year. A company pay tax at a rate of 24% per year. After-tax cost of debt for Anggun Bhd is 8%
Required -
i. Calculate the project-specific cost of equity for the proposed new investment.
ii. Determine the new weighted average cost of capital for Anggun Bhd.
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