Plant, Inc., is considering making an offer to purchase Root Corp. Plants vice president of finance has collected the following information:

	Plant	Root
Priceearnings ratio	15	11
Shares outstanding	2,000,000	1,000,000
Earnings	$6,500,000	$2,000,000
Dividends	$1,000,000	$550,000

Plant also knows that securities analysts expect the earnings and dividends of Root to grow at a constant rate of 3 percent each year. Plant management believes that the acquisition of Root will provide the firm with some economies of scale that will increase this growth rate to 5 percent per year.

a) What is the value of Root to Plant?

b) Discuss if diversification per se would be a good reason for this merger. Justify your answer with samples