[nguyentrang159]

Sorry for bothering you this issue again but I want to understand it really clear.

In calculation for Type III Acquisition (in Text Book BPP), step 2 refers to calculation of AVERAGE ASSET BETA for the group after acquisition.

However, I wonder what is “average asset beta” ? Is it “weighted average asset beta” ? If so, what is the WEIGHTING for each asset beta of individual company? the proportion of equity to combined equity or proportion of capital (equity+debt) to combined capital (combined equity + combined debt)

For example. Company A wants to acquire Company B.
Capital of A: Debt: $500m, Equity $500m, total capital $1000m (including finance for acquisition)
Capital of B: Debt: $100m, Equity $300m, total capital $400m

Asset beta of A: 1.5
Asset beta of B: 2

So the average asset beta for the group post-acquisition is:

1.5×500/(500+300) + 2×300/(500+300) : the weighting is proportion of individual equity to combined equity

or:

1.5×1000/(1000+400) + 2×400/(1000+400) : the weighting is proportion of individual capital (debt+equity) to combined capital

?

Which way is correct in the exam?

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