An anonymous buyer has offered through a business broker to

Reference no: EM13619403

The Board of Directors for Colton Industries, a diversified manufacturer of fiberglass products, is considering a proposal by the CEO to sell the firm's boat manufacturing division.

An anonymous buyer has offered through a business broker to purchase the boat division from Colton for $50 million. Since the book value of the boat division is also $50 million, there would be no taxes on the sale. Boat sales in the upcoming fiscal year are expected to be $40 million. However, yearly sales have been declining steadily at a rate of 4 percent per year. The CFO believes that the trend in boat sales cannot be reversed, and that sales in the boat division will continue to decline in perpetuity at a rate of 4 percent per year due to relentless competition from foreign manufacturers located in Paraguay. As further evidence supporting the proposed sale, the CEO notes that Colton's profit margin on boat sales is only 15 percent (of sales). The CFO has argued that selling the boat division is not attractive because the proposed sale has an internal rate of return that is less the firm's opportunity cost of capital of 10 percent. Assuming that Colton has a marginal tax rate of 30 percent,

a. Determine the internal rate of return for the proposed sale.

b. Explain whether Board should approve the sale of the boat division.

Reference no: EM13619403

Questions Cloud

If he can earn 6 percent apr with monthly compounding on : johnson needs to have 60000 in 8 years. to reach the goal he intends to make monthly contributions to a savings plan.

The air pressure maintained above the waer level in the : an emergency fire control system on a public building has a pressurized tank on top of the bulding and is connected

We can model this as a discharge of the capacitor through : capacitors wont hold a charge indefinitely as time goes on charge gradually migrates from the positive to the negative

What would a voltmeter read if it were connected between : a very long insulating cylindrical shell of radius 6.20cm carries charge of linear density 8.70ucm spread uniformly

An anonymous buyer has offered through a business broker to : the board of directors for colton industries a diversified manufacturer of fiberglass products is considering a

Let x be a random variable that represents the monthly : let x be a random variable that represents the monthly electric bills in a certain city. data shows that x is

A 50 box is on a frictionless 45 slope and is connected via : a 5.0 box is on a frictionless 45 slope and is connected via a massless string over a massless frictionless pulley to a

Consider the company you work for or if your company is not : consider the company you work for or if your company is not publicly held pick a company you are familiar with. would

If the target were not in the way how far would the bullet : a horizontal rifle is fired at a bulls-eye. the muzzle speed of the bullet is 670 ms. the gun is pointed directly at

User Account

All Pages