Question
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 | $1000 | $300 |
| Face value of zero coupon debt | $1000 | $300 |
| 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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The Future For Investors
Authors: Jeremy Siegel
1st Edition
140008198X, 978-1400081981
