Bentley Corp. and Rolls Manufacturing are considering a merger. The possible states of the economy and each companys value in that state are shown here:
| Bentley Corp. and Rolls Manufacturing are considering a merger. The possible states of the economy and each companys value in that state are shown here: |
| State | Probability | Bentley | Rolls | |||||
| Boom | .70 | $ | 294,000 | $ | 264,000 | |||
| Recession | .30 | $ | 112,000 | $ | 82,000 | |||
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| Bentley currently has a bond issue outstanding with a face value of $127,000. Rolls is an all-equity company. |
| a. | What is the value of each company before the merger? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Value of Bentley | $ |
| Value of Rolls | $ |
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| b. | What are the values of each companys debt and equity before the merger? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Equity of Bentley | $ |
| Debt of Bentley | $ |
| Equity of Rolls | $ |
| Debt of Rolls | $ |
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| c. | If the companies continue to operate separately, what are the total value of the companies, the total value of the equity, and the total value of the debt? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Value of companies | $ |
| Value of equity | $ |
| Value of debt | $ |
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| d-1. | What would be the value of the merged company? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Merged company value | $ |
| d-2. | What would be the value of the merged companys debt and equity? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) |
| Value of debt | $ |
| Value of equity | $ |
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| e-1. | How much would shareholders gain or lose in the merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Enter a gain as a positive number and a loss as a negative number.) |
| Shareholders' gain or loss | $ |
| e-2. | How much would bondholders gain or lose in the merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Enter a gain as a positive number and a loss as a negative number.) |
| Bondholders' gain or loss | $ |
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Authors: Hal Scott, Anna Gelpern
21st Edition
1634602048, 978-1634602044
