a)Suppose company A plans to acquire company B, and suppose that the beta of B is different

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a)Suppose company A plans to acquire company B, and suppose that the beta of B is different from the beta of A. How are the company's pre-merger betas used in valuing the acquisition? How would potential operational synergies affect the usefulness of beta in valuing the acquisition? Explain carefully.

b) A stock has a beta of 3. A security analyst who specializes in studying this stock expects its return to be 20 percent. Suppose the risk-free rate is 2 percent and the market risk premium is 12 percent. Is the analyst pessimistic or optimistic about this stock relative to the market's expectations? Explain.

Posted Date: May 13, 2024 02:17 AM

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a)Suppose company A plans to acquire company B, and suppose that the beta of B is different

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Expert Answer:

a In valuing the acquisition of company B by company A the premerger betas of both companies are typically used to estimate the postmerger beta of the combined entity The beta of a company reflects it... View the full answer

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