Question
In: Finance
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and form Fudge Swirl Consolidated. Both companies are exactly alike except that they are located in different towns. The end-of-period value of each firm is determined by the weather, as shown below. There will be no synergy to the merger.
| State | Probability | Value | ||||
| Rainy | .3 | $ | 440,000 | |||
| Warm | .2 | 620,000 | ||||
| Hot | .5 | 1,160,000 | ||||
The weather conditions
in each town are independent of those in the other. Furthermore,
each company has an outstanding debt claim of $620,000. Assume that
no premiums are paid in the merger.
How much do
stockholders and bondholders each gain or lose if the merger is
undertaken? (A negative answer should be indicated by a
minus sign. Do not round intermediate
calculations.)
| Bondholder gain/loss | $ | ||
| Stockholder gain/loss | $ |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...
The Chocolate Ice Cream Company and the Vanilla Ice Cream
Company have agreed to merge and form Fudge Swirl Consolidated.
Both companies are exactly alike except that they are located in
different towns. The end-of-period value of each firm is determined
by the weather, as shown below. There will be no synergy to the
merger.
State
Probability
Value
Rainy
.2
$
290,000
Warm
.3
470,000
Hot
.5
935,000
The weather conditions in each town are independent of those in...
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...
The Chocolate Ice Cream Company and the Vanilla Ice Cream
Company have agreed to merge and form Fudge Swirl Consolidated.
Both companies are exactly alike except they are located in
diferent towns. The end of period value of each firm is determined
by the weather, as shown below. There will be no synergy to the
merger.
State Probability Value
Rainy .01 $410,000
Warm .04 $590,000
Hot .05 $1,115,000
The weather conditions in each town are independent of those in
the...
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...
The Chocolate Ice Cream Company and the Vanilla Ice Cream
Company have agreed to merge and form Fudge Swirl Consolidated.
Both companies are exactly alike except that they are located in
different towns. The end-of-period value of each firm is determined
by the weather, as shown below. There will be no synergy to the
merger.
State
Probability
Value
Rainy
.1
$
260,000
Warm
.4
440,000
Hot
.5
890,000
The weather conditions in each town are independent of those...
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...
The Chocolate Ice Cream Company and the Vanilla Ice Cream
Company have agreed to merge and form Fudge Swirl Consolidated.
Both companies are exactly alike except that they are located in
different towns. The end-of-period value of each firm is determined
by the weather, as shown below. There will be no synergy to the
merger.
State
Probability
Value
Rainy
.1
$
280,000
Warm
.4
460,000
Hot
.5
920,000
The weather conditions in each town are independent of those in...
The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...
The Chocolate Ice Cream Company and the Vanilla Ice Cream
Company have agreed to merge and form Fudge Swirl Consolidated.
Both companies are exactly alike except that they are located in
different towns. The end-of-period value of each firm is determined
by the weather, as shown below. There will be no synergy to the
merger.
State
Probability
Value
Rainy
.1
$
320,000
Warm
.4
500,000
Hot
.5
980,000
The weather conditions in each town are independent of those in
the...
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