Question: Suppose Reading Engine Company which has a high beta as
Suppose Reading Engine Company, which has a high beta as well as a great deal of corporate risk, merged with Simplicity Patterns Inc. Simplicity’s sales rise during recessions, when people are more likely to make their own clothes, and consequently its beta is negative, but its corporate risk is relatively high. What would the merger do to the required rates of return in the consolidated company’s locomotive engine division and in its patterns division?
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