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:

Longitudinal Research

A research design that involves repeated observations of the same variables, such as people or situations, over a period of time, ranging from several years to decades.

Observing

The act of carefully watching someone or something, often to gain information.

Third Variable

A factor that is not directly involved in an experimental setting but that may affect the relationship between the independent and dependent variables.

Correlation Coefficient

A numerical measure that represents the strength and direction of a relationship between two variables, ranging from -1 to 1.