Problem 3.1. Flip Corp. and Flop Corp. are each valued at $l00 million. The taxable earnings of the two firms in any future year have the following probability distribution:

Probability	Flip Taxable Earnings	Flop Taxable Earnings
0.3	-$4 million	-$4 million
0.2	-$4 million	$l4 million
0.2	$l4 million	-$4 million
0.3	$l4 million	$l4 million

The corporate tax rate is 20% for positive taxable earnings but there are no tax-loss car- ryforwards or carrybacks. If the two firms merge to form FlipFlop Corp., what will be the market value of the combined firm? Assume there are no synergies other than tax savings and the discount rate for tax savings is 5%.