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(Solved) Sunburn Sunscreen has a zero coupon bond issue outstanding with a

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $11,000 face value that matures in one year. The current market value of the firm?s assets is $13,100. The standard deviation of the return on the firm?s assets is 29 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. |

Frostbite Thermalwear has a zero coupon bond issue outstanding with a face value of $43,000 that matures in one year. The current market value of the firm?s assets is $46,600. The standard deviation of the return on the firm?s assets is 35 percent per year. |

Suppose Sunburn Sunscreen and Frostbite Thermalwear have decided to merge. Because the two companies have seasonal sales, the combined firm?s return on assets will have a standard deviation of 19 percent per year. |

a-1. | What is the combined value of equity in the two existing companies? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |

Equity | $ |

a-2. | What is the combined value of debt in the two existing companies? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |

Debt | $ |

b-1. | What is the value of the new firm?s equity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |

Equity | $ |

b-2. | What is the value of the new firm?s debt? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |

Debt | $ |

c-1. | What was the gain or loss for shareholders? (Loss amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |

Gain / Loss | $ |

c-2. | What was the gain or loss for bondholders? (Loss amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |

Gain / Loss | $ |

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