General Systems and Fast Works Merger

General Systems, a computer manufacturer, announces that it will be acquiring FastWorks Software. You know the following:

• General Systems had a levered beta of 1.09 prior to the merger. The firm has a market value of equity of $12 billion and $16 billion in debt outstanding.
• FastWorks Software had a levered beta of 1.30 prior to the merger. The firm has a market value of equity of $6.00 billion and $6.00 billion in debt outstanding.

a) Estimate Unlevered beta for General Systems

b) Estimate Unlevered beta for Fast Works

c) Estimate the unlevered beta of the combined firm.

d) If you were told that the combined firms levered beta will be 1.270 after the acquisition, how much debt did General Systems use to acquire FastWorks? [You can assume that General Systems will assume Fastworks existing debt]. Both firms have a 40.00%Tax rate

e) Estimate Debt-to-capital after transaction (in decimal form)