Summer Sunglasses has debt in the form of zero coupon bonds with a face value of $10,000 which is due in one year Today's value of Summer Sunglasses ' assets is $11,900 Summer Sunglasses ' assets return standard deviation is 28 percent per year The annual Treasury bill, or risk free, rate is 4 percent, compounded continuously Winter Boots has debt in the form of zero coupon bonds with a face value of $44,000 which is due in one year Today's value of Winter Boots ' assets is $47,600 Winter Boots ' assets return standard deviation is 34 percent per year Now, let's say, these two companies, Summer Sunglasses and Winter Boots have decided to merge The seasonality of the two companies' sales revenues creates the diversification effect As a result, the newly created firms (Winter Sunglasses Summer Boots) assets return standard deviation is only 18 percent per year a 1 Calculate the sum of market values of equity of Summer Sunglasses and Winter Boots (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) a 2 Calculate the sum of market values of debt of Summer Sunglasses and Winter Boots (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) b 1 Calculate the market value of equity of the newly created Winter Sunglasses Summer Boots (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) b 2 Calculate the market value of debt of the newly created Winter Sunglasses Summer Boots (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) c 1 Calculate the gain or loss for stockholders as a result of this merger (A loss should be indicated by a minus sign Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) c 2 Calculate the gain or loss for bondholders as a result of this merger (A loss should be indicated by a minus sign Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) a 1 Equity a 2 Debt b 1 Equity b 2 Debt C 1 Gain Loss C 2 Gain Loss

Question

Summer Sunglasses  has debt in the form of zero coupon bonds with a face value of $10,000 which is due in one year  Today's value of  Summer Sunglasses  ' assets is $11,900   Summer Sunglasses  ' assets return standard deviation is 28 percent per year  The annual Treasury bill, or risk free, rate is 4 percent, compounded continuously   Winter Boots  has debt in the form of zero coupon bonds with a face value of $44,000 which is due in one year  Today's value of  Winter Boots  ' assets is $47,600   Winter Boots  ' assets return standard deviation is 34 percent per year  Now, let's say, these two companies, Summer Sunglasses and Winter Boots have decided to merge  The seasonality of the two companies' sales revenues creates the diversification effect  As a result, the newly created firms (Winter Sunglasses   Summer Boots) assets return standard deviation is only 18 percent per year  a 1  Calculate the sum of market values of equity of  Summer Sunglasses  and  Winter Boots   (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) a 2  Calculate the sum of market values of debt of  Summer Sunglasses  and  Winter Boots   (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) b 1  Calculate the market value of equity of the newly created  Winter Sunglasses   Summer Boots   (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) b 2  Calculate the market value of debt of the newly created  Winter Sunglasses   Summer Boots   (Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) c 1  Calculate the gain or loss for stockholders as a result of this merger  (A loss should be indicated by a minus sign  Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) c 2  Calculate the gain or loss for bondholders as a result of this merger  (A loss should be indicated by a minus sign  Do not round intermediate calculations and round your answer to 2 decimal places, e g , 32 16 ) a 1  Equity a 2  Debt b 1  Equity b 2  Debt C 1  Gain   Loss C 2  Gain   Loss

Accepted Answer

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a-1.	Calculate the sum of market values of equity of "Summer Sunglasses" and "Winter Boots". (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a-2.	Calculate the sum of market values of debt of "Summer Sunglasses" and "Winter Boots". (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-1.	Calculate the market value of equity of the newly created "Winter Sunglasses & Summer Boots". (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-2.	Calculate the market value of debt of the newly created "Winter Sunglasses & Summer Boots". (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c-1.	Calculate the gain or loss for stockholders as a result of this merger. (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c-2.	Calculate the gain or loss for bondholders as a result of this merger. (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Question

Summer Sunglasses has debt in the form of zero-coupon bonds with a face value of $10,000 which is due in one year. Today's value of

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