1. Bentley PLC and Rolls Manufacturing are considering a merger. The possible states of the economy for next year and each company's payoffs in that state are shown in the table below: State Boom Recession Probability 0.70 0.30 Bentley 300,000 110,000 Rolls 260,000 80,000 Bentley currently has a bond issue outstanding with a face value of 140,000 that matures next year. Rolls is an all-equity company. a) What is the expected value of each company next year if there is no merger? (10 marks) b) What is the expected value next year of Bentley's Equity and Debt if there is no merger? (10 marks) c) Suppose there is no synergy from the merger. What would be the expected total value of the merged company next year? What would be the expected value next year of the merged company's debt and equity? (20 marks) d) Would there be a transfer of wealth in this case? If so why does this occur? (20 marks) Page 1 of 8 e) Suppose the face value of Bentley's debt was 100,000. Would this affect the transfer of wealth? (10 marks) f) Analyse the reasons why managers might pursue a merger or acquisition even if it does not appear to benefit their company's shareholders (30 marks)