Not sure how to figure out section C. The Chocolate Ice Cream Company and the Va

Question

Not sure how to figure out section C.

The Chocolate Ice Cream Company and the Vanla 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 Warm Hot $320,000 500,000 980,000 The weather conditions in each town are independent of those in the other. Furthermore, each company has an outstanding debt claim of $500,000. Assume that no premiums are paid in the merger a. What are the possible values of the combined company? (Do not round intermediate calculations.) Possible states Rain-Rain Rain-Warm Rain-Hot Warm-Warm Warm-Hot Hot-Hot Joint Value 640000 820000 1300000 1000000 1480000 1960000

Explanation / Answer

Answer a)

ALL given detail are possible combination

Answer B) In the case of merger if new firm cannot service its debt obligation ,the debt holders recieve the value of asset. Total debt = 500,000 + 500,000 = 10,00,000

ALL given detail are possible combination

Answer C)

Bond Holder Loss/Gain -$10,800

Stock Holder Loss/Gain $ 351,000

Possible state Value Rain-Rain 320000+320000 $640,000 Rain_Warm 320000+500000 $820,000 Rain-Hot 320000+980000 $1,300,000 Warm-Warm 500000+500000 $1,000,000 Warm-Hot 500000+980000 $1,480,000 Hot-Hot 980000+980000 $1,960,000

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.