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

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