You are valuing multiple steady-state companies in the same industry. Company A is projected to earn $160 in EBITA, grow at 2 percent per year, and generate ROICs equal to 15 percent. Company C is projected to earn $120 in EBITA, grow at 5 percent per year, and generate ROICs equal to 12 percent. Both companies have an operating tax rate of 25 percent and a cost of capital of 10 percent. What are the enterprise-value-to-EBITA multiples for both companies? Does higher growth lead to a higher multiple in this case? Why do the results differ between Questions 3 and 4?
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