Simpson Inc

question 35

Multiple Choice

Simpson Inc.is considering a vertical merger with The Lachey Company.Simpson currently has a required return of 11%,while Lachey's required return is 15%.The market risk premium is 5% 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.

• A)1.46
• B)1.54
• C)1.61
• D)1.69
• E)1.78

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Definitions:

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