Calculating divisional WACCs Use the same formula for WACC, but inputs are now division-specific How do we calculate beta for each division? – Divisions/segments are not publicly traded so we don’t observe a beta for each division – We can use Hamada’s equation (i.e., the unlevered and relevered betas) 1

Calculating divisional betas – Start with the betas of comparable publicly traded companies – Unlever each beta using each comparable company’s capital structure – The unlevered beta represents business risk – Take the average business risk and relever to reflect the division’s capital structure – Things to think about: What is a “comparable” company? Look at the variability of the unlevered betas What capital structure should you use for each division? 2

Calculating the WACC for the Petrochemicals division – We can think of the corporate beta as a weighted average of the divisional betas – So to get the beta for the Petrochemical division, we can use the corporate WACC, and the betas for the other two divisions – What corporate beta should you use? 3