Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved.
Fantastic news! We've Found the answer you've been seeking!
Question:
Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%.
| Company A | Company B |
Market value of assets | $600 | $600 |
Face value of zero coupon debt | $600 | $600 |
Debt maturity | 4 years | 4 years |
Asset return standard deviation | 50% | 50% |
The asset return standard deviation for the combined firm is 20%.
How much more value will debtholders collectively receive after the merge(keep two decimal places)?
Related Book For
Matching Supply with Demand An Introduction to Operations Management
ISBN: 978-0073525204
3rd edition
Authors: Gerard Cachon, Christian Terwiesch
Posted Date: