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Dunbar Hardware: Maximum Price Per Share

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

Solution Summary

The solution explains how to determine the maximum price per share in an acquisition.