Suppose we want to check the robustness of an estimated terminal value (calculated in year 2)...
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Suppose we want to check the robustness of an estimated terminal value (calculated in year 2) for a company we are valuing. We look at a very similar company: • Its publicly listed stock sells for a price of $23, it has 1000 shares, $500 of debt and an EBIT of $2,000 The projected EBIT on our company is as follows: O O EBIT = 1400, EBIT₁ = 1700, EBIT₂ = = 1900 What is a terminal value we could use? Sun, Inc. produces solar heaters • Cash flows will be $1.8M/year for 10 years • Firm has $5M in debt, $5M in equity O r = 10%, and debt will be paid in equal installments over the next 10 years Tc = 46%; unlevered cost of equity r = 12% O What is the value of this firm? With the following information, what is the 'valuation' of Delta? • UA's D+E (market value of debt and equity) is $1B, and AA's is $2B • UA's sales = $1.5B, AA's sales = $1.25B • UA's EBIT = $0.5B, AA's EBIT = $0.75B Think of these EBIT values and the sales #'s as projected values for this year for UA and AA • Delta's projected sales this year is $2B, and projected EBIT is $0.75B O Suppose we want to check the robustness of an estimated terminal value (calculated in year 2) for a company we are valuing. We look at a very similar company: • Its publicly listed stock sells for a price of $23, it has 1000 shares, $500 of debt and an EBIT of $2,000 The projected EBIT on our company is as follows: O O EBIT = 1400, EBIT₁ = 1700, EBIT₂ = = 1900 What is a terminal value we could use? Sun, Inc. produces solar heaters • Cash flows will be $1.8M/year for 10 years • Firm has $5M in debt, $5M in equity O r = 10%, and debt will be paid in equal installments over the next 10 years Tc = 46%; unlevered cost of equity r = 12% O What is the value of this firm? With the following information, what is the 'valuation' of Delta? • UA's D+E (market value of debt and equity) is $1B, and AA's is $2B • UA's sales = $1.5B, AA's sales = $1.25B • UA's EBIT = $0.5B, AA's EBIT = $0.75B Think of these EBIT values and the sales #'s as projected values for this year for UA and AA • Delta's projected sales this year is $2B, and projected EBIT is $0.75B O
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1 Estimate the terminal value using the EBIT multiples method For the comparable company EBIT 2000 Market value of equity 23 1000 23000 Enterprise val... View the full answer
Related Book For
Probability and Statistical Inference
ISBN: 978-0321923271
9th edition
Authors: Robert V. Hogg, Elliot Tanis, Dale Zimmerman
Posted Date:
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