Estimate the minimum price the owner should consider for its saleA company estimates that to build a new company it would
cost $300 million in present value terms or they could purchase an existing
company. The book value of the company’s they are looking at purchasing has
assets of $200 million and its EBIT is $40 million. Similar companies are
selling around 10 times current earnings. The companies have debt-to-asset
ratios averaging 30 percent with an average interest rate of 12 percent.
Using a tax rate of 25 percent, estimate the minimum price
the owner of the firm should consider for its sale and the maximum price the
company interested in the purchase should pay?