Firm A has an After-Tax Cost of Debt of 8%. The Corporate Income Tax Rate is 40% and the Cost of Preferred Stock is 16%. All remaining financing requires a 20% Rate of Return.
Total Assets equal $500,000. Total Liabilities equals $250,000 and Total Preferred Stock equal $125,000. Earnings Before Taxes equal $200,000 and the Dividend Payout Rate is 100%.
Net Income After Retention will grow at a rate of 5% indefinitely starting next year. A suitor is considering the purchase of Firm A.
Based on the information above, what is the minimum price that Firm A should be willing to accept from the suitor?