Question

# Hi,

I need help in starting this problem:

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 $520 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 $350 million and its earnings before interest and tax are presently $60 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 36 percent, estimate the minimum price the owner of the division should consider for its sale. **(Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) **

Thanks,

Renee

Financial Accounting