In Early 2009 Ham Inc

question 6

Multiple Choice

In early 2009 Ham Inc.'s management was considering making an offer to buy Egg Corporation. Egg's projected operating income (EBIT) for 2009 was $30 million, but Ham believes that if the two firms were merged, it could consolidate some operations, reduce Egg's expenses, and raise its EBIT to $40 million. Neither company uses any debt, and they both pay income taxes at a 40% rate. Ham has a better reputation among investors, who regard it as better managed and also less risky, so Ham's stock has a P/E ratio of 15 versus a P/E of 12 for Egg. Since Ham's management will be running the entire enterprise after a merger, investors will value the resulting corporation based on Ham's P/E. Based on expected market values, how much synergy should the merger create?

• A) $129.96
• B) $136.80
• C) $144.00
• D) $151.20
• E) $158.76

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Definitions:

Laggards

In the context of marketing and innovation, individuals who are the last to adopt new products or technologies, often resistant to change.

Late Majority

A group in the diffusion of innovation theory, representing consumers who adopt new products or technologies after the average member of society, often motivated by a desire to maintain the status quo.

Late Adopters

Individuals or groups who are among the last to use or accept new products, technologies, or ideas, often due to skepticism or resistance to change.

Favourable Attitudes

Refers to positive predispositions or feelings towards people, objects, or concepts.