2) (20 pts) Two ice cream companies A and B have agreed to merge and form a new company C. Both companies are exactly al

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2 20 Pts Two Ice Cream Companies A And B Have Agreed To Merge And Form A New Company C Both Companies Are Exactly Al 1 (41.92 KiB) Viewed 53 times

2) (20 pts) Two ice cream companies A and B have agreed to merge and form a new company C. Both companies are exactly alike except that they operate in two different towns. The end of period value of each firm is determined by weather as shown in the table below. There will be no synergy to the merger. < Town Proability 10% Value $230,000 Rainy Warm 40% $450,000 Hot 50% $905,000 The weather conditions in each town are independent of each other. Each firm has an outstanding debt claim of $450,000. Assume that no premiums are paid in the merger.< i) What are the possible values of the end-of-period debt and stock after the merger? ii) Are bondholders or stockholders better off in the combined firm than they would have been if the firms had remained separate?< J 7 7 7 7 7 7 7 7 7 111111111 ↑