The beta of Sanafil is 1.2. Sanafil is evaluating a merger with Matra, a firm that has a beta of 0.95. Sanafil's stock sells for $40 per share and there are 10 million shares outstanding. Matra's stock sells for $60, but there are only 2 million shares outstanding. If these two firms merge, what will be the merged firm's beta?
A) 1.00
B) 1.14
C) 1.05
D) 1.16
MVS = $40(10,000,000) = $400,000,000
MVM = $60(2,000,000) = $120,000,000

Question

Quizplus · Accepted Answer

Solution:
bp = (120 / 520)(0.95) + (400 / 520)(1.2) = 1.14

The Beta of Sanafil Is 1