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:

Cheek

Side of the face forming the lateral wall of the mouth.

Trigeminal Nerve

A cranial nerve responsible for sensation in the face and motor functions such as biting and chewing.

Vestibulocochlear

Referring to the eighth cranial nerve that transmits sound and equilibrium (balance) information from the inner ear to the brain.

Dentists Anesthetize

The process by which dentists use medication to numb areas of the mouth during procedures to prevent pain.