What is the value of the new firm equity

Assignment Help Financial Management

Reference no: EM132062790

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $11,000 face value that matures in one year. The current market value of the firm's assets is $13,100. The standard deviation of the return on the firm's assets is 29 percent per year.

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $43,000 that matures in one year. The current market value of the firm's assets is $46,600. The standard deviation of the return on the firm's assets is 35 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 19 percent per year, and the annual risk-free rate is 5 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: EM132062790

Questions Cloud

What is the maturity date of this loan : The loan carried a rate of 4% and Tristan agreed to pay a maximum of $105 in interest. What is the maturity date of this loan?

Calculate the income available to pay the asset funders : Calculate the income available to pay the asset funders and resulting return on asset-funders' investment for the two firms.

What is the present value of the investment in given case : You purchased bare land for $500 per acre as an investment to supplement your retirement income. After three years, you plan to reforest the property at a cost.

Determining the nominal rate of return : You purchased a bond for 935$. The bond has a face value of 1000 and it pays a dividend at 9% annual rate twice a year. You sold the bond for 910$ after 3 years

What is the value of the new firm equity : What is the combined value of equity in the two existing companies? What is the value of the new firm’s equity? What was the gain or loss for bondholders?

Determine dollar return on the investment : You purchased 310 shares of a particular stock at the beginning of the year at a price of $76.73. The stock paid a dividend of $1.65 per share.

European call option on the stock : Use binomial trees to describe the process of the stock and the European call option on the stock.

Assets liabilities-equity current assets-current liabilities : Use the following financial statements for Lake of Egypt Marina, Assets Liabilities and Equity Current assets: Current liabilities:

What is total return from the investment : You purchased 4,400 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $45.50 per share. The front-end load for this fund is 5.

User Account

All Pages