Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bentley Corp. and Rolls Manufacturing are considering a merger. The possible states of the economy and each company's value in that state are shown here:

image text in transcribed

image text in transcribed

Bentley Corp. 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 Boom Recession Probability 0.70 0.30 Value of Bentley Value of Rolls. Bentley currently has a bond issue outstanding with a face value of $136,000. Rolls is an all-equity company. a. What is the value of each company before the merger? (Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) Bentley Rolls $ 312,000 $ 282,000 $ 121,000 $ 91,000 Value of the Rolls equity Value of the Rolls debt Value of the Bentley's equity Value of the Bentley's debt $ $ b. What are the values of each company's debt and equity before the merger? (Enter the answer in dollars, not millions of dollars. Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.) $ $ $ $ c. If the companies continue to operate separately, what are the total values of the companies, the equity, and the debt? (Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) Total value Total value of the equity Total value of the debt. $ $ $ d-1. What would be the value of the merged company? (Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) Merged company value $ d-2. What would be the value of the merged company's debt and equity? (Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) Merged equity value Merged debt value $ e-1. Is there a transfer of wealth in this case

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Company Valuation Playbook Invest With Confidence

Authors: Charles Sunnucks

1st Edition

1838470816, 978-1838470814

Students also viewed these Finance questions