Simpson Inc. is considering a vertical merger with The Lachey Company. Simpson currently has a required return of 8%, while Lachey's required return is 17%. The market risk premium is 5.20% and the risk-free rate is 5%. Assume the market is in equilibrium. If Simpson is going to make up 80% of the new firm (and Lachey will comprise the remaining 20%), 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.

Answer rating: 100% (QA)

To calculate the beta of the new merged firm we need to consider the weights of Sim... View the full answer