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Consider two firms, Macy Corporation and Mara Corporation. Both corporations will either make $50 million or lose $30 million every year with equal probability. The
Consider two firms, Macy Corporation and Mara Corporation. Both corporations will either make $50 million or lose $30 million every year with equal probability. The only difference is that the firms' profits are perfectly negative correlated. That is, any year Macy Corporation earns $50 million, Mara Corporation loses $30 million, and vice versa. Assume that the corporate tax rate is 30%. What are the total expected after-tax profits of both firms when they are two separate firms? What are the
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