Dunbar Hardware, a National Hardware Chain, Is Considering Purchasing a Smaller

question 31

Multiple Choice

Dunbar Hardware, a national hardware chain, is considering purchasing a smaller chain, Eastern Hardware. Dunbar's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million, and they have determined that the appropriate discount rate for valuing Eastern is 16%. Eastern has 4 million shares outstanding and no debt. Eastern's current price is $16.25. What is the maximum price per share that Dunbar should offer?

• A) $16.25
• B) $16.97
• C) $17.42
• D) $18.13
• E) $19.00

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Definitions:

Outcome

The result or effect of an action, situation, or decision.

Fraction

A numerical quantity that is not a whole number, representing a part of a whole.

Deck Of Cards

A pack or set of playing cards typically consisting of 52 cards used in various games, each deck divided into four suits with a specific number of cards.

Odds

The ratio that reflects the likelihood of a particular event happening versus it not happening, often used in gambling and statistics.