Question Pursuit June 11

Dear Mr. John,

Combined Company: Cost of capital calculation
Asset beta (Pursuit Co) = 1·18 x 0·5/(0·5 + 0·5 x 0·72) = 0·686
Asset beta (Fodder Co) = 1·53 x 0·9/(0·9 + 0·1 x 0·72) = 1·417
Asset beta of combined co. = (0·686 x 140,000 + 1·417 x 40,095)/(140,000 + 40,095) = 0·849
Equity beta of combined company = 0·849 x (0·5 + 0·5 x 0·72)/0·5 = 1·46

To arrive to the asset beta of combined co. Asset beta of individual companies is multiplied by the market value of the firm of the individual companies devided by total value of the combined company

My understand is that asset beta represent only equity value of the company. if this is true why above answer is used market value of the firm (debt + equity.

Thank you