Question

The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and...

The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and form Fudge Swirl Consolidated. Both companies are exactly alike except that they are located in different towns. The end-of-period value of each firm is determined by the weather, as shown below. There will be no synergy to the merger.

State Probability Value
Rainy .2 $ 390,000
Warm .3 570,000
Hot .5 1,085,000

  

The weather conditions in each town are independent of those in the other. Furthermore, each company has an outstanding debt claim of $570,000. Assume that no premiums are paid in the merger.

a. What are the possible values of the combined company? (Do not round intermediate calculations.)

Possible states Joint Value
Rain-Rain $
Rain-Warm
Rain-Hot
Warm-Warm
Warm-Hot
Hot-Hot

  

b. What are the possible values of end-of-period debt and stock after the merger? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.)

Debt Value Stock Value
Rain-Rain $ $
Rain-Warm
Rain-Hot
Warm-Warm
Warm-Hot
Hot-Hot

c. How much do stockholders and bondholders each gain or lose if the merger is undertaken? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.)

Bondholder gain/loss $
Stockholder gain/loss $
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a...
Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a normal distribution with a mean of 25 gallons per week and a standard deviation of 3.4 gallons per week. The new manager desires a service level of 90 percent. Lead time is two days, and the dairy is open seven days a week. (Hint: Work in terms of weeks.) Use Table B and Table B1. b-2. What is the probability of experiencing a stockout...
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation....
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here: Bread Butter Price-earnings ratio 9.9 30 Shares outstanding 99,000 300,000 Earnings $ 250,000 $ 750,000 Bread's shareholders will receive one share of Butter stock for every three shares they hold in Bread. a-1. What will the EPS of Butter be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g.,...
Shining Cookie Company, Inc., in Murfreesboro, TN bought a new ice cream maker at the beginning...
Shining Cookie Company, Inc., in Murfreesboro, TN bought a new ice cream maker at the beginning of the year at a cost of $32,000. The estimated useful life was four years, and the residual value was $3,400. Assume that the estimated productive life of the machine was 11,000 hours. Actual annual usage was 4,400 hours in year 1; 3,300 hours in year 2; 2,200 hours in year 3; and 1,100 hours in year 4. Required: 1. Complete a separate depreciation...
[The following information applies to questions 3-6 displayed below.] Kruse Corporation holds 60 percent of the...
[The following information applies to questions 3-6 displayed below.] Kruse Corporation holds 60 percent of the voting common shares of Gary’s Ice Cream Parlors. On January 1, 20X6, Gary’s purchased $50,000 par value, 10 percent first mortgage bonds of Kruse from Cane for $58,000. Kruse originally issued the bonds to Cane on January 1, 20X4, for $53,000 (assuming a market interest rate of 9.074505 percent). The bonds have a 10-year maturity from the date of issue and pay interest semiannually...
Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts...
Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $330,000 indefinitely. The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $23 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it would offer 35 percent of its stock or $13 million in...
Mojito Mint Company has a debt–equity ratio of .25. The required return on the company’s unlevered...
Mojito Mint Company has a debt–equity ratio of .25. The required return on the company’s unlevered equity is 12 percent, and the pretax cost of the firm’s debt is 8.6 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,100,000. Variable costs amount to 75 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends at the end of each year.    a. If...
Bluegrass Mint Company has a debt-equity ratio of .20. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .20. The required return on the company’s unlevered equity is 11.8 percent and the pretax cost of the firm’s debt is 5.6 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $18,700,000. Variable costs amount to 55 percent of sales. The tax rate is 21 percent and the company distributes all its earnings as dividends at the end of each year.    a. If...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered equity is 12.1 percent and the pretax cost of the firm’s debt is 5.9 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,000,000. Variable costs amount to 60 percent of sales. The tax rate is 24 percent and the company distributes all its earnings as dividends at the end of each year.    a. If...
Bluegrass Mint Company has a debt-equity ratio of .45. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .45. The required return on the company’s unlevered equity is 12.3 percent and the pretax cost of the firm’s debt is 6.1 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,200,000. Variable costs amount to 65 percent of sales. The tax rate is 21 percent and the company distributes all its earnings as dividends at the end of each year.    a. If...
Bluegrass Mint Company has a debt-equity ratio of .40. The required return on the company’s unlevered...
Bluegrass Mint Company has a debt-equity ratio of .40. The required return on the company’s unlevered equity is 13.4 percent and the pretax cost of the firm’s debt is 7.2 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $20,300,000. Variable costs amount to 55 percent of sales. The tax rate is 22 percent and the company distributes all its earnings as dividends at the end of each year.    a. If...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT