Question
You are working as an analyst for Cavalier Systems Inc. The company is considering acquiring Spartan Technologies a privately held firm in the nano-widget industry.
You are working as an analyst for Cavalier Systems Inc. The company is considering acquiring Spartan Technologies a privately held firm in the nano-widget industry. Spartan currently has 40% debt in its capital structure and an equity beta of 1.82 wile Cavalier Systems has an equity beta of 1.64.If Cavalier is successful in acquiring Spartan, the company will be operated separately but with a capital structure that is debt and  equity. Spartan's debt has a zero beta. The relevant tax rate for both companies is 21%.You are trying to determine the correct discount rate to use to value Spartan but need to determine the appropriate beta first. Based on the above, Spartan's asset beta is ____ and the equity beta that Cavalier Systems should use in valuing Sparta post-merger is ____.
A.1.02, 1.82
B.1.19, 1.50
C.1.19, 1.64
D.1.26, 1.43
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