Sunburn Sunscreen has a zero coupon bond issue outstanding with a $10,000 face value that matures in one year. The current market value of the firm's assets is $10,900. The standard deviation of the return on the firm's assets is 31 percent per year. Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $20,000 that matures in one year. The current market value of the firm's assets is $23,100. The standard deviation of the return on the firm's assets is 38 percent per year. Suppose Sunburn Sunscreen and Frostbite Thermal wear have decided to merge. Because the two companies have seasonal sales, the combined firms return on assets will have a standard deviation of 21 percent per year. The annual risk-free rate is 6 percent per year, compounded continuously.

a-1.	What is the combined value of equity in the two existing companies?
a-2.	What is the combined value of debt in the two existing companies?

b-1.	What is the value of the new firms equity?

b-2.	What is the value of the new firms debt?

c-1.	What was the gain or loss for shareholders?

c-2.	What was the gain or loss for bondholders?