You have been asked to assess the impact of a proposed acquisition on the beta of a firm and have been provided the following information on the two firms involved in the deal:

The risk-free rate is 4% and the equity risk premium is 6%.

1. Estimate the unlevered beta of the combined firm.

Acquirer No. of Shares Outstanding 1,500 Share Price $8.00 Market & Book Value of Debt $3,000 Book Value of Equity $8,000 Levered Beta 1.2 Tax rate 40% Bond Rating AAA Default spread 0.5% Target 1,000 $6.00 $4,000 $8,000 1.5 40% BBB 2.5%