Maji Inc. has a zero-coupon bond issue outstanding with a $55,000 par value that matures in two years. The current market price of the firm's assets is $58,000. The standard deviation of return on the firm's asset is 38% per year. Ungar Inc. has a zero-coupon bond issue outstanding with a $72,000 par value that matures in two years. The current market price of the firm's assets is $87,000. The standard deviation of return on the firm's asset is 53% per year. The annual risk-free rate is 5% per year compounded continuously. Maji Inc. and Ungar Inc. are planning to merge to form a single firm called Maji-Ungar Inc. The correlation between the free cash flows (FCF) of both firms is -0.41509. (Hint: Use the 2-asset portfolio equation to derive the variance of assets of the combined firms after the merger) a) What is each firm's market value of equity and market value of debt before the merger? (10 points) b) What is each firm's continuously compounded cost of debt before the merger? (4 points) c) What is the market value of the equity and debt of Maji-Ungar Inc. (post-merger values)? (4 points) d) What was the gain or loss in wealth to shareholders and to bondholders after the merger? Explain in not more than 2 sentences what the merger implies to shareholders of both firms. (2 points) Maji Inc. has a zero-coupon bond issue outstanding with a $55,000 par value that matures in two years. The current market price of the firm's assets is $58,000. The standard deviation of return on the firm's asset is 38% per year. Ungar Inc. has a zero-coupon bond issue outstanding with a $72,000 par value that matures in two years. The current market price of the firm's assets is $87,000. The standard deviation of return on the firm's asset is 53% per year. The annual risk-free rate is 5% per year compounded continuously. Maji Inc. and Ungar Inc. are planning to merge to form a single firm called Maji-Ungar Inc. The correlation between the free cash flows (FCF) of both firms is -0.41509. (Hint: Use the 2-asset portfolio equation to derive the variance of assets of the combined firms after the merger) a) What is each firm's market value of equity and market value of debt before the merger? (10 points) b) What is each firm's continuously compounded cost of debt before the merger? (4 points) c) What is the market value of the equity and debt of Maji-Ungar Inc. (post-merger values)? (4 points) d) What was the gain or loss in wealth to shareholders and to bondholders after the merger? Explain in not more than 2 sentences what the merger implies to shareholders of both firms. (2 points)