About asset beta and equity beta – Question 1 – December 2014

Hi,
As you know, we have the formula that:

Assets beta =( equity beta x equity )/ (equity + debt)

=> Equity beta = asset beta x (equity + debt)/ equity

(ignore tax)

In the answer for question 1 of December 2014 (P4), when calculate the assets beta of Reka Co’s and Equity beta of Fugae Co, the examiner used value of debt multiple with 0.8 (asset beta of the non-luxury transport industry) instead of using debt value only.

Evenly, when calculate Project’s risk adjusted cost of capital, the examiner also use debt*0.8 instead of debt value only.

<Appendix 2.1>

Can you explain to me why the examiner did that (multiple debt value with asset beta of the non-luxury transport industry <0.8> in the above calculation?

Thanks a lot in advance,
HV