The Chocolate Ice Cream Company And The Vanilla

Question

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 to…

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 Rainy Warm Hot Probability Value 1 270,000 450,000 905,000 4 5 The weather conditions in each town are independent of those in the other. Furthermore, each company has an outstanding debt claim of $450,000. Assume that no premiums are paid in the merger. a. What are the possible values of the combined company? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Possible states Joint Value $ 540000 Rain-Rain Rain-Warm 720000 1175000 Rain-Hot 900000 Warm-Warm 1355000 Warm-Hot Hot-Hot 1810000 b. What are the possible values of end-of-period debt values and stock values after the merger? (Leave no cells blank be certain to enter "O" wherever required. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Stock Value Debt Value $ 540000 Rain-Rain Rain-Warm 720000 900000 Rain-Hot 275000 900000 Warm-Warm 900000 Warm-Hot 455000 910000 Hot-Hot 900000 c. 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 and round your answers to the nearest whole number, e.g., 32.) $ 18,000 Bondholder gain/loss Stockholder gain/loss

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