[tayyab9102]

I try to solve the question according to your steps to follow, would you please check the calculations and WACC I calculated is correct.?

1. Asset beta of Global plc
ßa (Global plc) = 1.202

2. Asset beta of Ship Building
ßa (Ship Building) = 1.758

3. Asset beta of Oil-rig construction
ßa (Global plc) = ßa (Ship Building) x 0.5 + ßa (Oil-rig) x 0.5
ßa (Oil-rig) 0.646

4. Equity beta of Oil-rig construction
ßa (Oil-rig) = 1.015

5. Cost of Equity
Ke = rf+(rm-rf)*ße
Ke = 5%+(12%-5%)x1.015
Ke = 12.11%

6. Cost of Debt (Post-tax)
Kd = Cost of Debt (Pre-tax) x (1-T)
Kd = 7% x (1-0.3)
Kd = 4.90%

7. Risk-adjusted WACC
WACC = 9%

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