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

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

Correct Answer:

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