The Chocolate Ice Cream Company and the Vanilla Ice Cream Company have agreed to merge and form Fudge Swirl Consolidated.

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 .1 $ 320,000 Warm .4  500,000 Hot .5  980,000 

The weather conditions in each town are independent of those in the other. Furthermore, each company has an outstanding debt claim of $500,000. Assume that no premiums are paid in the merger.

a. What are the possible values of the combined company?(solved)

rain-rain= 640,000

rain-warm= 820,000

rain- hot= 1,300,000

warm-warm=1,000,000

warm-hot=1,480,000

hot-hot= 1,960,000

I need help with parts b and c.

b.

c.

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