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 $30 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 $35 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 12 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?
A)$7.94
B)$8.36
C)$8.80
D)$9.26
E)$9.75

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The Answer of 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 $30 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 $35 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 12 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?
A)$7.94
B)$8.36
C)$8.80
D)$9.26
E)$9.75

At the Beginning of the Year Giant Inc