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Problem 9 - 6 A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build and staff a facility

Problem 9-6
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 $1,060 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 division's assets is $1,000 million and its earnings before interest and tax are presently $125 million. Publicly traded comparable
companies are selling in a narrow range around 12 times current earnings. These companies have book value debt-to-asset ratios
averaging 40 percent with an average interest rate of 10 percent.
a. Using a tax rate of 38 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 1 decimal place.
Minimum price
millio
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