Novell, which had a market value of equity of $3.5 billion and a beta of 2,announced that it was acquiring WordPerfect, which had a market value of equity of $1.5 billion and a beta of 2.30. Neither firm had any debt in its financial structure at the time of the acquisition, and the corporate tax rate was 35%.

a. Estimate the beta for Novell after the acquisition, assuming that the entire acquisition was financed with equity.

b. Assume that Novell had to borrow the $1.5 billion to acquire WordPerfect. Estimate the beta after the acquisition.