Estimate the minimum price the owner of the division

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Question - A sporting goods manufacturing 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 $1,130 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 assets is $1,100 million and its earnings before interest and tax are presently $135 million. Publicly traded comparable companies have book value debt to asset ratios averaging 40 percent with an average interest rate of 10 percent. Using a tax rate of 40 percent, estimate the minimum price the owner of the division should consider for it sale.

Reference no: EM133175970

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