Simpson Inc

question 5

Multiple Choice

Simpson Inc.is considering a vertical merger with The Lachey Company.Simpson currently has a required return of 9%,while Lachey's required return is 14%.The market risk premium is 5.10% and the risk-free rate is 5%.Assume the market is in equilibrium.If Simpson is going to make up 67% of the new firm (and Lachey will comprise the remaining 33%) ,what will be the beta of the new merged firm? There will be no additional infusion of debt in the merger.Do not round your intermediate calculations.

• A) 1.05
• B) 1.38
• C) 1.11
• D) 0.83
• E) 1.16

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