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Question 4 (2 points) Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%.

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Question 4 (2 points) Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Company A Market value of assets $700 Face value of zero coupon debt $700 Debt maturity 4 years Asset return standard deviation 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)? Your Answer: Answer Compan $400 $400 4 years 50% Question 4 (2 points) Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Company A Market value of assets $700 Face value of zero coupon debt $700 Debt maturity 4 years Asset return standard deviation 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)? Your Answer: Answer Compan $400 $400 4 years 50%

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