ATT (the phone company) had a beta of .57 before it bought Warner Brothers Studios (a content maker and television show producer) with a beta of 1.11 . When doing the analysis for the acquisition of Warner should ATT use it own beta of .57 in calculating the cost of capital for the acquisition or should it have used the 1.11 beta for Warner Brothers Studios? Why?

As a follow on to the prior questions what should happen to the beta of the combined company after the acquisition. In otherwords should the combined beta be higher or lower than the .57 beta for ATT before the merger? Why?

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When analyzing the acquisition of Warner Brothers ... View the full answer