What is the combined value of equity in the two existing

Assignment Help Financial Management

Reference no: EM132000665

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $29,000 face value that matures in one year. The current market value of the firm's assets is $30,700. The standard deviation of the return on the firm's assets is 37 percent per year.

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $33,000 that matures in one year. The current market value of the firm's assets is $36,400. The standard deviation of the return on the firm's assets is 43 percent per year.

Suppose Sunburn Sunscreen and Frostbite Thermalwear have decided to merge. Because the two companies have seasonal sales, the combined firm's return on assets will have a standard deviation of 21 percent per year, and the annual risk-free rate is 6 percent per year, compounded continuously.

a-1 What is the combined value of equity in the two existing companies? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Equity $

a-2 What is the combined value of debt in the two existing companies? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Debt $

b-1 What is the value of the new firm's equity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Equity $

b-2 What is the value of the new firm's debt? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Debt $

c-1 What was the gain or loss for shareholders? (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Gain/Loss $

c-2 What was the gain or loss for bondholders? (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Gain/Loss $

Reference no: EM132000665

Questions Cloud

Effectiveness of a substance use prevention program : The focus for the major essay is the effectiveness of a substance use prevention program of your choice

Prepare the journal entry to record income tax expense : Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007

Prepare the bottom portion of kerdyk income statement : Prepare the bottom portion of Kerdyk's 2007 income statement, beginning with "Income before income taxes and extraordinary item."

Discuss the concept of simple vs complex capital structures : Discuss the concept of simple vs. complex capital structures and how it relates to the reporting of earnings per share

What is the combined value of equity in the two existing : Sunburn Sunscreen has a zero coupon bond issue outstanding with a $29,000 face value that matures in one year.

Develop a document for assessing the decommissioned : Develop a document for assessing the decommissioned equipment from the different locations, collecting it and disposing of the equipment.

What is the default risk premium on corporate bonds : Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 6.65%.

Prepare appropriate journal entries for lessee and lessor : Show how Lessor calculated the $75,000 annual lease payments. Prepare the appropriate journal entries for both Lessee and Lessor on December 31, 2011

What should the spot rate of us dollars for bps be : Sun Bank USA has purchased a 8 million one-year Australian dollar loan that pays 15 percent interest annually.

User Account

All Pages