27 Mergers and Equity as an Option Suppose Shire plc (problem 25) decides to reorient its operations
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27 Mergers and Equity as an Option Suppose Shire plc (problem 25) decides to reorient its operations and, as a result, the return on assets now has a standard deviation of 30 per cent per year.
(a) What is the value of Shire plc equity now? The value of debt?
(b) What was the gain or loss for shareholders? For bondholders?
(c) What happened to shareholder value here?
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