Powell Motors is expected to have profits of $5 million each year from now to eternity.The company pays out all of its annual earnings as dividends to owners of its 1 millionshares of stock. The required rate of return on the stock is 7.3%.

a.Powell Motors is not quoted on a stock exchange, but brokers can find potential buyers/sellers.What is a reasonable price to pay for a share of Powell Motors stock?

b.If you were a Powell Motors stockholder and William Ackman offered to buy out the shareholders with an offer of $85 million for the firm ($85 per share), would you vote to accept this offer?