21. The management of Rowe Boat Co. decided to go private in 2003 by buying all 2 million of its outstanding shares at $ 16.50 per share. By 2008, management had restructured the company by selling the scuba diving division for $7.5 million, the pleasure cruise division for $9 million, and the military contract aqua division for $11 million.

Because these divisions had been only marginally profitable, Rowe Boat is a stronger company after the restructuring. Rowe is now able to concentrate exclusively on the construction of new boats and will generate earnings per share of

$1.20 this year. Investment bankers have contacted the firm and indicated that, if it returned to the public market, the 2 million shares it purchased to go private could now be reissued to the public at a P/E ratio of 15 times earnings per share.

a. What was the initial total cost to Rowe Boat Co. to go private?

b. What is the total value to the company from (1) the proceeds of the divisions that were sold as well as (2) the current value of the 2 million shares (based on current earnings and an anticipated P/E of 15)?

c. What is the percentage return to the management of Rowe Boat Co. from the restructuring? Use answers from parts a and b to determine this value.