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…

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter25: Taxation Of International Transactions

Section: Chapter Questions

Problem 26P

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After many years of success, Kaputnik Company 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 Company will even still be in existence. The enacted tax rate is 35% for all applicable tax 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 Kaputnik ever recorded a deferred tax asset…

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