Advance Wear is merging with Swish. Advance Wear has debt with a face value of $80 and Swish has debt with a face value of $40. Swish stockholders will receive stock in the combined firm in an amount equal to the standalone market value of Swish. The premerger values of the firms given two economic states with equal probabilities of occurrence are as follows: Premerger Values: Advance Wear Assets Debt Equity Swish Stage 1 $ 160 80 80 Stage 2 $ 40 40 0 $ 80 40 40 Market Value $ 100 60 40 Assets $ 20 Debt 20 0 Equity If the merger provides no synergy, what will be the gain or loss to the current shareholders of Advance Wear? $ 50 30 20

Advance Wear is merging with Swish. Advance Wear has debt with a face value of $80 and Swish has debt with a face value of $40. Swish stockholders will receive stock in the combined firm in an amount equal to the standalone market value of Swish. The premerger values of the firms given two economic states with equal probabilities of occurrence are as follows: Premerger Values: Advance Wear Assets Debt Equity Swish Stage 1 $ 160 80 80 Stage 2 $ 40 40 0 $ 80 40 40 Market Value $ 100 60 40 Assets $ 20 Debt 20 0 Equity If the merger provides no synergy, what will be the gain or loss to the current shareholders of Advance Wear? $ 50 30 20

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 5P

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