Stripe, a clothing company, is acquiring Dot, a sunglass company in a stock-for-stock merger (i.e., the...

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Stripe, a clothing company, is acquiring Dot, a sunglass company in a stock-for-stock merger (i.e., the equity values are just combined with no incremental debt raised). Today, Stripe holds a significant portion of debt and Dot has no debt. Equity Debt Levered p Ba Stripe $100 $150 1.1 Dot $50 Merged $150 3 a) What is the Dot's implied levered equity beta for the combined company's unlevered beta to be 0.65? Note that B is 0.3. b) How much incremental debt (with proceeds paid out as dividend to shareholders) will the merged entity need to take on to ensure that the ke = 20% ? Note that the ERP is 4% and k, is 6%. Stripe, a clothing company, is acquiring Dot, a sunglass company in a stock-for-stock merger (i.e., the equity values are just combined with no incremental debt raised). Today, Stripe holds a significant portion of debt and Dot has no debt. Equity Debt Levered p Ba Stripe $100 $150 1.1 Dot $50 Merged $150 3 a) What is the Dot's implied levered equity beta for the combined company's unlevered beta to be 0.65? Note that B is 0.3. b) How much incremental debt (with proceeds paid out as dividend to shareholders) will the merged entity need to take on to ensure that the ke = 20% ? Note that the ERP is 4% and k, is 6%.

Answer rating: 100% (QA)

a To find Dots implied levered equity beta for the combined companys unlevered beta to be 065 we can use the formula for the levered beta e u 1 DE 1 T ... View the full answer