You have collected returns on firm X and the S&P500index for five years:

Year AD Corp. NYSE

2017 10% 5%

2018 5% 15%

2019 5% 8%

2020 20% 12%

2021 5% 5%

There are 20 million shares outstanding, and the current market price is $2 per share. The firm has $20 million in debt outstanding. The firm has a tax rate of 36%. Equity risk premium is 5.5%.

a. What would an investor in Firm x's stock require as a return if the risk free rate is 6%?

b. Assume now that Firm x has three divisions of equal size (in market value terms). It plans to divest itself of one of the divisions for $20 million in cash and acquire another for $50 million (it will borrow $30 million to complete this acquisition). The division it is divesting is in a business line where the average unlevered beta is 0.20, and the division it is acquiring is in a business line where the average unlevered beta is 0.80. What will the beta of firm x be after this acquisition?