Bentley Corporation and Rolls Manufacturing are considering a merger. The possible states of the economy and each company’s value in that state are shown here: State Probability Bentley Rolls Boom .70 $ 330,000 $ 300,000 Recession .30 130,000 100,000 Bentley currently has a bond issue outstanding with a face value of $145,000. Rolls is an all-equity company.
Bentley Corporation and Rolls Manufacturing are considering a merger. The possible states of the economy and each company’s value in that state are shown here: State Probability Bentley Rolls Boom .70 $ 330,000 $ 300,000 Recession .30 130,000 100,000 Bentley currently has a bond issue outstanding with a face value of $145,000. Rolls is an all-equity company.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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|
Bentley Corporation and Rolls Manufacturing are considering a merger. The possible states of the economy and each company’s value in that state are shown here: |
| State | Probability | Bentley | Rolls |
|---|---|---|---|
| Boom | .70 | $ 330,000 | $ 300,000 |
| Recession | .30 | 130,000 | 100,000 |
| Bentley currently has a bond issue outstanding with a face value of $145,000. Rolls is an all-equity company. |
Transcribed Image Text:d-2. What would be the value of the merged company's debt and equity? (Do not round
intermediate calculations and round your answers to the nearest whole number,
e.g., 32.)
Value of debt
Value of equity
e-1. How much would shareholders gain or lose in the merger? (Do not round
intermediate calculations and round your answer to the nearest whole number,
e.g., 32. Enter a gain as a positive number and a loss as a negative number.)
Shareholders' gain or loss
Transcribed Image Text:c. If the companies continue to operate separately, what are the total value of the
companies, the total value of the equity, and the total value of the debt? (Do not
round intermediate calculations and round your answers to the nearest whole
number, e.g., 32.)
Value of companies
Value of equity
Value of debt
d-1. What would be the value of the merged company? (Do not round intermediate
calculations and round your answer to the nearest whole number, e.g., 32.)
Merged company value
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