The required rate of return for overall stock market and for the given beta value. Required Rate of Return: The required rate of return is the rate which should be the minimum earning on an investment to keep that investment running in the market. When the required return is earned only then the users and the companies invest in that particular investment.

Question

Assume that the following statements of financial position are stated and a book value. Alpha Corporation Current Assets $15,000 Current Liabilities $5,400 Net Fixed Assets 39,000 Long-Term Debt 10,100   Equity 38,500     $54,000   $54,000 Beta Corporation Current Assets $3,600 Current Liabilities $1,400 Net Fixed Assets 6,700 Long-Term Debt 2,100     Equity 6,800   $10,300   $10,300 Suppose the fair market value of Beta’s fixed assets is $9,500 rather than the $6,700 book value shown. Alpha pays $17,300 for Beta and raises the needed funds through an issue of long-term debt. Construct the post-merger statement of financial position now, assuming that the purchase method of accounting is used.

Answer 1

Question

Chapter 8, Problem 4P

Summary Introduction

To determine: The required rate of return for overall stock market and for the given beta value.

Required Rate of Return:

The required rate of return is the rate which should be the minimum earning on an investment to keep that investment running in the market. When the required return is earned only then the users and the companies invest in that particular investment.

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