Answer to Question #83883 in Finance for Jafrul Hussain

Question #83883
Stock A is currently earning a return of 10% and has a beta of 0. 75, whilst Stock B is
earning 15% and has a beta of 1.5. The rate of return on the market is 12% and a risk
free asset yields 5%. According to the CAPM:
a. Stocks A and B are earning equilibrium returns
b. Stock A is overpriced and stock B is underpriced
c. Stock A is underpriced and stock B is overpriced
d. Socks A and B are overpriced

.Firm A has a value of £200 million and Firm B has a value of £140 million. Merging the
two companies would allow cost savings with a present value of £30 million. If Firm A
purchases Firm B for £150 million, how much do the shareholders of firm A gain from this
a. £20 million
b. £30 million
c. £40 million
d. £50 million
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