o Two firms, Blue and Yellow, will merge to form a new firm called Green. o Blue has a beta of 2, and no debt. o Yellow has a levered beta of 3, and 50 % debt. o Both companies are valued at $2M. o The risk free rate is 6% and the market risk premium is 9%. o What will be the levered beta of Green (ignore taxes)? o What will be the cost of equity for Green? o What if Green changes its capital structure to 30% debt