A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build
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Question:
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 $ million in present value terms. Alternatively, the company could acquire an existing firm or division with the desired capacity. One such opportunity is a division of another company. The book value of the divisions assets is $ million and its earnings before interest and tax are presently $ million. Publicly traded comparable companies are selling in a narrow range around times current earnings. These companies have book value debttoasset ratios averaging percent with an average interest rate of percent.
a Using a tax rate of percent, estimate the minimum price the owner of the division should consider for its sale.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to decimal place.
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