Alpha is considering a purely financial merger with Beta. Alpha currently has a market value of $14 million, an asset return standard deviation of 55 percent, and pure discount debt of $6 million that matures in four years. Beta has a market value of $6 million, an asset return standard deviation of 60 percent, and pure discount debt of $2 million that matures in four years. The risk free rate, continuously compounded, is 3.5 percent. The combined equity value of the two separate firms is $14,180,806. By what amount will the combined equity value change if the merger occurs and the asset return standard deviation of the merged firm is 45 percent? Multiple Choice -$548,285 -$314,007 $0 $99,087 Use the information below to answer the following question TABLE 253 Cumulative Normal Distribution d d Nid) Nd) 2236 d 06 08 2297 d 1.66 1.68 1.79 10 .76 174 72 .70 68 06 64 .12 1.72 114 .16 18 20 3.00 -2.95 -2.99 -2.85 -2.80 -2.75 -2.70 -2.65 -2.60 -2.55 -2.50 2.45 -2.40 -2.35 2:30 225 --220 2.15 -2.10 2.05 2.00 1.98 -1.96 d -1.58 -1.56 1.54 -1.52 1.50 1.48 1246 1.44 1.42 1.40 -1.38 1.36 1.34 1.32 -1.30 -128 -1.26 1.24 -1.22 1.20 -1.18 -1.16 1.14 -1.12 -1.10 Nid) 0671 0594 0618 0643 0668 0894 0721 0749 0778 0808 0838 0869 0901 0934 0968 1003 1038 1075 1112 .1151 1190 1230 .1271 .80 58 56 54 52 50 48 Nid) .0013 .0016 .0019 .0022 .0026 .0030 0035 0040 0047 .0054 10062 .0071 0082 0094 0107 0122 0139 .0158 0179 0202 0228 0239 0250 0262 .0274 0287 0301 0314 .0329 .0344 0359 0375 0092 0409 0427 0446 0405 D485 -2358 2420 2483 2546 2611 2676 2743 2810 2877 2948 3015 3085 3156 3228 3300 3372 3446 3520 3594 24 26 28 30 32 34 d 86 88 90 92 94 98 98 1.00 1.02 1.04 1.00 1.08 1.10 1.12 1.14 1.16 1.18 120 122 1.24 1.26 1.28 130 Nid) 8051 8106 8159 8212 8284 8315 B365 8413 8461 8508 8554 8599 8643 8686 8729 8770 8810 8849 8888 8925 1.74 1.76 1.78 1.80 1.82 1.84 1.86 1.88 1.90 162 1.94 1.90 1.99 2.00 2.05 2.10 2.15 2.20 2.25 46 Nidh .9519 9535 9554 9573 9591 9608 9625 9641 $656 9671 -9686 9899 9713 9726 9738 9750 9761 9772 979 9821 3842 9861 9878 983 9906 9918 44 5239 5319 5398 5478 5557 5636 5714 5793 5871 5948 0026 6103 6179 6256 6331 6406 6480 6554 6628 6700 6772 6844 6915 6965 7054 7123 7100 7257 7324 7389 7454 7518 -7580 7642 2704 7764 7823 7881 7939 7995 42 40 -38 36 240 42 44 34 3660 8997 9032 9066 2.30 2.35 9009 3745 3821 3897 3974 4052 .4129 4207 -1.06 -1.04 -1.02 30 28 26 -24 22 - 20 -.18 -210 -.14 - 12 1:34 1.36 1.38 1.40 1.42 9131 9162 9192 8222 -1.00 -1.92 -1.90 -1.88 1.88 1.84 -1.82 -1.80 -1.78 -1.70 -1.74 1.72 -1.70 -1.68 -1.66 -1.64 -1.62 -1.60 -98 46 -48 USO 52 54 56 58 60 62 64 166 68 70 72 74 76 78 80 82 84 4304 4443 1357 1401 .1446 1492 61539 1587 1635 1685 1736 1788 1841 1894 1949 2005 2061 2119 2177 1.44 1.46 1.48 1.50 96 94 3279 9306 9332 9357 9382 2.45 2.50 2.55 2.60 2.65 2.70 2.75 2.80 2.85 2.90 2.95 3.00 3.05 10 1.52 9946 9053 9980 9905 9970 9974 9978 9981 9984 9987 9989 90 4522 4602 4681 4761 4840 4920 5000 5080 5160 - 88 86 84 82 80 -78 00 -0 -04 -.02 .00 .02 .04 1.54 1.56 1.58 1.00 1.62 1.64 9429 .9452 9474 9495 0505 0526 0548 This table shows e probably Nid of being a value less than or equal to . For example, as stated - 24. then 4002
