=2. A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build and staff a facility of the desired size and to attain capacity operations would cost $275 million in present value terms. Alternatively, the company could acquire an existing firm or division with the desired capacity. One such opportunity is the division of another company. The book value of the division's assets is $140 million and its earnings before interest and tax are presently $30 million. Publicly traded comparable companies are selling in a narrow range around 12 times current earnings. These companies have debt-to-asset ratios averaging 40 percent with an average interest rate of 10 percent.