Jacobs Industries is currently selling for $25 a share and pays a dividend of $2 a share per year. Analysts expect the earnings and dividends to grow 4 percent per year into the foreseeable future. The company has 1 million shares outstanding. John Jacobs, the CEO, would like to take the firm private in a leveraged buyout. Following the buyout, the firm is expected to cut operating costs, which will result in a 10 percent improvement in earnings. In addition, the firm will cut administrative fixed costs by

$200,000 per year and save $500,000 per year on taxes for the next 10 years. Assuming that the riskfree interest rate is 5 percent, and that Jacobs Industries’ cost of capital is 12 percent per year, what value would you put on Jacobs Industries following the LBO?

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