Business, 05.05.2020 04:20 brooklyns357

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. 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, and the annual risk-free rate is 5 percent per year, compounded continuously. a-1 What is the combined value of equity in the two existing companies?

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Sunburn Sunscreen has a zero coupon bond issue outstanding with a $11,000 face value that matures in...