FCF and FCFE method

Question

Wmart Co plans to make a bid for the entire share capital of Ada Co, a company in the same
industry. It is expected that a bid of $75m for the entire share capital of Ada Co will be successful.
The acquisition will generate the following after-tax operating cash flows (ie pre-interest) over the
next few years by:
Year $m
1 5.6
2 7.4
3 8.3
4 onwards 12.1
Both companies have similar gearing levels of 16.7% (debt as a % of total finance).
Ada Co has a $15 million bank loan paying a fixed rate of 5.75%.
Wmart Co has an equity beta of 2.178, the risk-free rate is 5.75% and the market rate is 10%.
Corporation tax is at 30%.
Required
Assess whether the acquisition will enhance shareholder wealth in Wmart Co. (Use both Approach 1
and Approach 2.)

Answer –

WACC = (15 ? 0.833) + (4.03 ? 0.167) = 13.2% (rounded to 13%)

How did we get 0.833 in the calculation of WACC ?