General Systems, a computer manufacturer, announces that it will be acquiring FastWorks Software. You know the following: - General Systems had a beta of 1.25 before the merger. The firm has a market value of equity of $15 billion and $4 billion in debt outstanding. - FastWorks Software had a beta of 1.4 before the merger. The firm has a market value of equity of $6 billion and $2 billion in debt outstanding. Both firms have a 40% tax rate. Estimate the business risk (unlevered beta) for General Systems before acquisition. Estimate the business risk (unlevered beta) for FastWorks Software before acquisition. Estimate the business risk (unlevered beta) for the combined firm (after the acquisition). If General Systems acquired FastWorks Software by issuing 40% debt and 60% equity capital. Estimate the levered beta for the combined firm.

General Systems, a computer manufacturer, announces that it will be acquiring FastWorks Software. You know the following: - General Systems had a beta of 1.25 before the merger. The firm has a market value of equity of $15 billion and $4 billion in debt outstanding. - FastWorks Software had a beta of 1.4 before the merger. The firm has a market value of equity of $6 billion and $2 billion in debt outstanding. Both firms have a 40% tax rate. Estimate the business risk (unlevered beta) for General Systems before acquisition. Estimate the business risk (unlevered beta) for FastWorks Software before acquisition. Estimate the business risk (unlevered beta) for the combined firm (after the acquisition). If General Systems acquired FastWorks Software by issuing 40% debt and 60% equity capital. Estimate the levered beta for the combined firm.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 1dM

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Question

General Systems, a computer manufacturer, announces that it will be acquiring FastWorks
Software. You know the following:
- General Systems had a beta of 1.25 before the merger. The firm has a market value of equity
of $15 billion and $4 billion in debt outstanding.
- FastWorks Software had a beta of 1.4 before the merger. The firm has a market value of equity
of $6 billion and $2 billion in debt outstanding.
Both firms have a 40% tax rate.
Estimate the business risk (unlevered beta) for General Systems before acquisition.
Estimate the business risk (unlevered beta) for FastWorks Software before acquisition.
Estimate the business risk (unlevered beta) for the combined firm (after the acquisition).
If General Systems acquired FastWorks Software by issuing 40% debt and 60% equity capital.
Estimate the levered beta for the combined firm.

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