Denkel is a global company active in segments such as home care, personal care and adhesives. Since its revenues and profits have stagnated in recent years, the board of the directors hired a new CEO Russell Risklove to bring Denkel back on the growth path. As Russell lacks in-depth understanding of finance, he decided to make you the assistant to the CEO now giving advice in all fields of financial management.

Having participated in a workshop on portfolio theory a couple of years ago, Russell believes that Denkel should invest more money into risky assets. As he considers himself to be highly innovative, he is not willing to invest into a combination of the riskless asset and the market portfolio as all other investors do, but only into an individual portfolio on the efficient frontier that is more risky than the market portfolio. 

Russell is entirely convinced that operating growth will only improve via a new adhesives technology that he has recently heard about. He plans to acquire AdTec AG as it has been among the first launching this technology. AdTec is financed solely with equity. The Denkel M&A department compiled the following annual information for you: 

Evaluating the market and AdTec, you assume that AdTec is going to produce the following cash-flows in the coming years (figures in mn€):

* no risk-free interest rate 

Q) Comment on the impact of the acquisition on the systematic risk of Denkel. Assume that the current asset beta of Denkel is 0.9. What about the unsystematic risk that the new company is exposed to?

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Years 2012 2013 2014 2015 2016 2017 2018 2019 2020 Returns AdTec AG Prime Consumer Index (Market) 4% 6% 3% 9% 15% 4% 12% 15% 22% 2% 3% 5% 9% 7% 5% 6% 4% 7% Years 2012 2013 2014 2015 2016 2017 2018 2019 2020 Returns AdTec AG Prime Consumer Index (Market) 4% 6% 3% 9% 15% 4% 12% 15% 22% 2% 3% 5% 9% 7% 5% 6% 4% 7%

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