Question
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 | .80 | $ | 310,000 | $ | 280,000 | |||
| Recession | .20 | $ | 120,000 | $ | 90,000 | |||
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| Bentley currently has a bond issue outstanding with a face value of $135,000. 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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