Ayaz Textile (Pvt) Ltd is a textile co. working in Faisalabad foe the last 10 years.

It’s
β stands at 1.9 having the capital structure of 40% Debt. The co. is now
considering to invest in a new business area of making high quality shoes. The
average β of the companies making shoes are 2.3 with average gearing of 30%
debt. After the combination the new business area will comprise of the same
capital structure as the co. was and the new business area will now be considered
one third of the total business of the combined co. Tax rate is 30%. Risk free rate
is 7% and the risk premium return is 6%. The company can borrow funds at 9%.
Required
- Calculate the WACC of Ayaz Textile before investing in the new project
- Calculate the WACC of Ayaz Textile after investing in the new project