Corporate valuation is not an exact science as there are significant limitations when it comes to...

   

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Corporate valuation is not an exact science as there are significant limitations when it comes to valuing an enterprise! The Founder/CEO has asked your advice on a decision involving an investment offer from venture capital investors. He thinks that Bridgestone BV will make huge profits in the coming years and is considering a possible financing arrangement. However, to begin discussions, the VC firm requests a valuation of Bridgestone which is critical before any discussions on the purchase of shares can occur. As the CEO is optimistic, he provides Add ANR number where stated, for example, with ANR 425897, 2-year notes payable would be €3.125.897 -6- investors with an estimate of the firms' equity value, which closely matches the equity value as reported on the Balance sheet for 2019. He believes that such an estimate closely mirrors what investors should be willing to pay for the company. Do you agree with the valuation approach of the CEO? Do you have any concerns with the approach suggested? Why (not)? Use the information provided in the case, to answer the questions (a-b). a) In your opinion what is the most suitable valuation method that can be applied in determining the total valuation of Bridgestone. Without providing calculations, also discuss which valuation method can be best applied to derive a reasonable estimate of the firms' equity value. Use all case information, and other examples where possible to sufficiently motivate your answer. b) Consider a hypothetical situation whereby Bridgestone was a publicly listed firm as opposed to a startup company. If you were asked to recommend approaches to determine the firms' equity value, would your suggestions differ from the approaches mentioned above 4 (a)? Why (not)? Motivate your answer. Table 5 Investment Option1 €25.000 Option2 €25.000 Rate (r) 5% Annual Percentage rate (APR), on an annual basis 5% Effective Annual rate (EAR), on a semiannual basis Maturity 5 years 5 years Corporate valuation is not an exact science as there are significant limitations when it comes to valuing an enterprise! The Founder/CEO has asked your advice on a decision involving an investment offer from venture capital investors. He thinks that Bridgestone BV will make huge profits in the coming years and is considering a possible financing arrangement. However, to begin discussions, the VC firm requests a valuation of Bridgestone which is critical before any discussions on the purchase of shares can occur. As the CEO is optimistic, he provides Add ANR number where stated, for example, with ANR 425897, 2-year notes payable would be €3.125.897 -6- investors with an estimate of the firms' equity value, which closely matches the equity value as reported on the Balance sheet for 2019. He believes that such an estimate closely mirrors what investors should be willing to pay for the company. Do you agree with the valuation approach of the CEO? Do you have any concerns with the approach suggested? Why (not)? Use the information provided in the case, to answer the questions (a-b). a) In your opinion what is the most suitable valuation method that can be applied in determining the total valuation of Bridgestone. Without providing calculations, also discuss which valuation method can be best applied to derive a reasonable estimate of the firms' equity value. Use all case information, and other examples where possible to sufficiently motivate your answer. b) Consider a hypothetical situation whereby Bridgestone was a publicly listed firm as opposed to a startup company. If you were asked to recommend approaches to determine the firms' equity value, would your suggestions differ from the approaches mentioned above 4 (a)? Why (not)? Motivate your answer. Table 5 Investment Option1 €25.000 Option2 €25.000 Rate (r) 5% Annual Percentage rate (APR), on an annual basis 5% Effective Annual rate (EAR), on a semiannual basis Maturity 5 years 5 years

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