At the Beginning of the Year Giant Inc

question 16

Multiple Choice

At the beginning of the year Giant Inc.'s management is considering making an offer to buy Micro Corporation.Micro's projected operating income (EBIT) for the current year is $31.0 million,but Giant believes that if the two firms were merged,it could consolidate some operations,reduce Micro's expenses,and raise its EBIT to $37.0 million.Neither company uses any debt,and they both pay income taxes at a 35% rate.Giant has a better reputation among investors,who regard it as very well managed and not very risky,so its stock has a P/E ratio of 13 versus a P/E of 9 for Micro.Since Giant's management would be running the entire enterprise after a merger,investors would value the resulting corporation based on Giant's P/E.If Micro has 10 million shares outstanding,by how much should the merger increase its share price,assuming all of the synergy will go to its stockholders? Do not round your intermediate calculations.

• A) $15.10
• B) $11.16
• C) $16.41
• D) $13.79
• E) $13.13

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Definitions:

Retrieval Cues

Stimuli or signals that can trigger the recall of information from memory.

Proactive Interference

The phenomenon where old memories make it more difficult to remember new information.

Encoding Specificity

The principle that recall is more effective if the context at the time of encoding matches the context at the time of retrieval.

Retroactive Interference

A memory phenomenon where new information hinders the ability to recall older information.