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The Sentry Company and the Wong Corporation have the same market value of $100 million. Both firms have the following identical parameters:
a) What is the initial market value of debt and equity for Sentry and Wong?
b) The correlation between the two firms` cash flows is 0.5. If the two firms merge, the surviving firm will be worth $200 million What will the market value of debt and equity in the merged firm be? If there were no other merger effects, would shareholders agree to the merger?