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Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Company A Company B
Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%.
| Company A | Company B |
Market value of assets | $600 | $600 |
Face value of zero coupon debt | $600 | $600 |
Debt maturity | 4 years | 4 years |
Asset return standard deviation | 50% | 50% |
The asset return standard deviation for the combined firm is 20%. How much more value will debtholders collectively receive after the merge(keep two decimal places)?
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