The project is buying ML, so we want to use the asset beta for ML, not the asset beta for our existing business (BoA's beta). This is an application of the CAPM:
55.2
2.Let's say that Bank of America wants to buy
Merrill Lynch. The beta of the assets of Bank of America is 1.1
and the beta of the assets of Merrill Lynch is 1.3. The risk free
rate of return is 4% and the expected return on the market is
12%. What discount rate should Bank of America use to make the
decision of whether or not to buy?
The project is buying ML, so we want to use the asset beta for ML, not the asset beta for our existing business (BoA's beta). This is an application of the CAPM: