1. Company A and Company B want to merge. A has an equity beta of 1.34 and 43% of its capital structure is equity. B has an equity beta of 1.95 and 36% equity in its structure.
   1. Calculate the asset betas of A and B.

Ba of A: .5762

Ba of B: .703

1. If they merge, what would the asset beta of the combined company be if A has total assets of $2 billion and B has $500 million? (portfolio beta = weighted average of constituents)

1. If the resulting company funded itself with $1 billion in debt and $1.5 billion equity, what would the new equity beta be?

Answer rating: 100% (QA)

To calculate the asset betas of A and B we can use the following formula Ba Be E V Bd D V Where Ba A... View the full answer