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MA $($Modern Auto$),$ an automobile parts supplier, has made an offer to acquire Sky Systems, created of the software for the airline industry. The offer is to pay Sky Systems' shareholders the current market value of their stock in MA's stock. The relevant information it used in those calculations is given below:

Share Price: MA$=$ $$40,$ Sky Systems$=$ $$25$

Shares outstanding $($in millions$)$: MA$=40,$ Sky Systems$=15$

Earnings $($in millions$)$ MA$=$ $$100,$ Sky Systems$=$ $$30$

Although the total earnings of the combined company will not increase and are estimated to be $$130$ million, Charles Williams $($treasurer of the MA$)$ argues that there are two attractive reasons to merge. First, Wilhelm says, "The merger of MA and Sky Systems will result in lower risk for our shareholders because of the diversification effect." Second, Wilhelm also says, $"$If our EPS increases, our stock price will increase in line with the EPS increase because our P$/$E will stay the same.

Sky Sytems's managers are not interested in the offer by MA$.$ The managers instead, approach HiFly, Inc., which is in the same industry as Sky Systems, to see if it would be interested in acquiring Sky Systems. HiFly is interested, and both companies believe there will be synergies from this acquisition. If HiFly were to acquire Sky Systems, it would do so by paying $$400$ million in cash.

HiFly is somewhat concerned whether antitrust regulators would consider the acquisition of Sky Systems an antitrust violation. The market in which the two companies operate consists of eight competitors. The largest company has a $25$ percent market share. HiFly has the second largest market share of $20$ percent. Five companies, including Sky Systems, each have a market share of $10\%.$ The smallest company has a $5$ percent market share.

If Sky Systems were to be acquired by MA under the terms of the original offer, the post$-$merger EPS of the new company would be closest to:

Question $10$Select one:

a$.$

$$2\mathrm{.}00$

b$.$

$$2\mathrm{.}22$

c$.$

$$2\mathrm{.}32$

d$.$

$$2\mathrm{.}63$

e$.$

$$2\mathrm{.}92$

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