The management of Mitchell Labs decided to go private in 2002 by buying all 2.50 million of its outstanding shares at $20.20 pershare. By 2006, management had restructured the company by selling off the petroleum research division for $12.00 million, the fibertechnology division for $8.50 million, and the synthetic products division for $22 million. Because these divisions had been onlymarginally profitable, Mitchell Labs is a stronger company after the restructuring. Mitchell is now able to concentrate exclusively oncontract research and will generate earnings per share of $1.20 this year. Investment bankers have contacted the firm and indicatedthat if it reentered the public market, the 2.50 million shares it purchased to go private could now be reissued to the public at a P/Eratio of 15 times earnings per share.a. What was the initial cost to Mitchell Labs to go private? (Do not round intermediate calculations. Round your answer to 2 decimalplaces. Enter your answer in millions, not dollars (e.g., $1,230,000 should be entered as "1.23").)Initial costb. What is the total value to the company from (1) the proceeds of the divisions that were sold, as well as (2) the current value of the2.50 million shares (based on current earnings and an anticipated P/E of 15)? (Do not round intermediate calculations. Round youranswer to 2 decimal places. Enter your answer in millions, not dollars (e.g., $1,230,000 should be entered as "1.23").)Total value to the companymillionc. What is the percentage return to the management of Mitchell Labs from the restructuring? Use answers from parts a and b todetermine this value. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)Percentage return

Percentage return refers to the minimum return to be earned by the company expressed in the form of…

Answered: The management of Mitchell Labs decided…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Cincinnati Deco recently reported $204,500 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation. The company had $35,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 21%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $15,250 to buy new fixed assets and to invest $6,850 in net operating working capital. What was the firm's free cash flow?$26,663$23,700$30,403$19.256No correct answer
In 2017, Bramble Corporation discontinued its retail store operations to focus on its online opportunities. The elimination of these retail operations is properly considered a discontinued operation. During the current year, its store operations lost $ 750,000 (net of tax) while its online operations reported a profit of $ 3,210,000 (net of tax). Bramble sold the store operations at the end of the year at a loss of $ 1,360,000 (net of tax). Prepare an income statement for 2017 beginning with line item "Income from continuing operations." BRAMBLE CORPORATION Partial Income Statement %24 %24 > > >
Pelican Oil is a publicly traded oil and gas company specializing in global exploration and offshore drilling. Even though Pelican has been operating for almost 30 years, it is still considered a "newcomer" in the industry. The key leaders in the industry are large conglomerates that have been operating for over 100 years. Over the last 18 months, the global supply of oil has exceeded the demand, resulting in a significant drop in oil prices. A drop in oil prices means decreased revenue for oil and gas companies of all sizes. For smaller companies in the industry like Pelican, significant drops in oil prices are harder to withstand. (The larger conglomerates are so well diversified that they have an easier time withstanding fluctuations in the oil market.) In response to the drop in oil prices and decreased demand, Pelican has temporarily suspended drilling operations and laid off employees in the field and in the corporate office. You are preparing for the upcoming audit of Pelican.…
Honda and GM are competing to sell a fleet of cars to Hertz. For simplicity, we assume straight - line depreciation and that Hertz will dispose of the cars after five years. Hertz expects that the autos will have no salvage value. Hertz expects a fleet of 50 cars to generate $400,000 per year in pretax income. Hertz is in the 40-percent tax bracket and the firm's overall required return is 10 percent. The addition of the new fleet will not add to the risk of the firm. (a) What is the maximum price that Hertz should be willing to pay for the fleet of cars?
(Related to Checkpoint 14.4) (Flotation costs and NPV analysis) The Faraway Moving Company is involved in a major plant expansion that involves the expenditure of $211 million in the coming year. The firm plans on financing the expansion through the retention of $142 million in firm earnings and by borrowing the remaining $69 million. In return for helping sell the $69 million in new debt, the firm's investment banker charges a fee of 150 basis points (where one basis point is 0.01 percent). If Faraway decides to adjust for these flotation costs by adding them to the initial outlay, what will the initial outlay for the project be? The flotation cost adjusted initial outlay is $. (Round to the nearest dollar.)
After many years of success, Kaputnik Co. recorded net operating losses for the years year 13 through year 16, totaling $250 million, resulting in the recording of large deferred tax assets based on the assumption of a rapid return to profitability. However, attempts by management to revamp its outmoded business model have so far failed. A radical final attempt to save the company will be implemented in year 18. It will entail selling off the vast majority of Kaputnik's asset groups while maintaining a small but promising segment. The projected outlook for the near term is a modest net profit of $5 million over the next three years, beyond which it is impossible to determine if Kaputnik Co. will even still be in existence. The enacted tax rate has been 35% for the last several years and is expected to be 21% in year 17 and future years. No addition to the deferred tax asset balance will be recorded for year 17, during which Kaputnik recorded a $70 million net operating loss, nor has…
An officer for a large construction company is feeling nervous. The anxiety is caused by a new excavator just released onto the market. The new excavator makes the one purchased by the company a year ago obsolete. As a result, the market value for the company’s excavator has dropped significantly, from $600,000 a year ago to $50,000 now. In ten years, it would be worth only $3,000. The new excavator costs only $950,000 and would increase operating revenues by $90,000 annually. The new equipment has a ten-year life and expected salvage value of $175,000. The tax rate is 35%, the CCA rate, 25% for both excavators, and the required rate of return for the company is 14%. What is the NPV of the new excavator?
An officer for a large construction company is feeling nervous. The anxietyis caused by a new excavator just released onto the market. The newexcavator makes the one purchased by the company a year ago obsolete.As a result, the market value for the company’s excavator has droppedsignificantly, from $600,000 a year ago to $50,000 now. In ten years, itwould be worth only $3,000. The new excavator costs only $950,000 andwould increase operating revenues by $90,000 annually. The newequipment has a ten-year life and expected salvage value of $175,000. Thetax rate is 35%, the CCA rate, 25% for both excavators, and the requiredrate of return for the company is 14%. What is the NPV of the newexcavator? (Negative answer should be indicated by a minus sign. Do notround your intermediate calculations. Round the final answer to 2decimal places. Omit $ sign in your response.)NPV $
The king carpet company has $2,820,000 in cash and a total of $11,280,000 in current assets. The firms current liabilities equal $6,730,000 such that the firms current ratio equals 1.7. The company’s managers want to reduce the firm’s cash holdings down to $1,150,000 by paying $591,000 in cash to expand the firm’s truck fleet and using $1,079,000 in cash to retire a short term note. If they carry this plan through, what will happen to the firm’s current ratio? The new current ratio is Round to one decimal place.
Provide solution for this question

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS