Anadello Inc, an all-equity firm, which had a market value of equity of $3 billion and a beta of 1.2, announced that it was acquiring Tetronic Inc, which was an all-equity firm with a market value of equity of $1.5 billion and a beta of 1.5. The corporate tax rate for both firms is 40%.

Assume that Anadello Inc acquired Tetronic using a mixed payment method: Anadello had to borrow the $0.5 billion to acquire Tetronic in cash and issue $1 billion in stock to acquire Tetronic in stock.

Estimate the beta of Anadello after the acquisition.

options

A. 1.3867

OB. 1.3975

O C. 1.4933

OD. 1.5050

OE. None of the answers given in A., B., C. and D. are correct.