The estimated beta for RDG is 0.74. The risk free rate of return is 4 percent and the Equity Risk Premium is 5 percent. What is
1 answer:
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Answer:
Equal to the sum of their net assets (whether or not the assets are revalued)
Explanation:
Mathematically, equity equals the total asset of a company, less its total liabilities. This is also referred to the net assets of the company.
However, when two companies are merging, the total assets of the combining companies are usually revalued to reflect their current values and not the historical values usually carried in the books before the merger. In a revaluation, if the value of total assets increases, a corresponding increase will be recorded in Equity (revaluation surplus). This keeps the Equity-Net Assets equation equal at all times.
Thus, when two companies merge, the total amount of equity of the combined companies will equal the net assets of the combined companies, irrespective of whether a revaluation of the assets of the companies was done or not.