Question:
Simpson Inc. is considering a vertical merger with the Lachey Company. Simpson currently has a required return of 11%,while Lachey's required return is 15%. The market risk premium is 5% and the risk-free rate is 5%. Assume the market is in equilibrium. If Simpson is going to make up 2/3 of the new firm (and Lachey will comprise the remaining 1/3), what will be the beta of the new merged firm?