Stryker Inc. is an American farm equipment firm with a financing business. In the most recent...

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Stryker Inc. is an American farm equipment firm with a financing business. In the most recent year, the firm reported the following breakdown of key operating items (in millions): Sales EBITDA EBIT Net Income BV of equity BV of Debt Cash Cost of equity Cost of capital Farm Equipment $10,000 $1,500 $1,000 $400 $3,000 $2,000 $500 9% 7.50% Financing $2,000 $650 $650 $100 $1,000 $3,000 $500 8% 6.20% Entire firm $12,000 $2,150 $1,650 $500 $4,000 $5,000 $1,000 8.80% 7.00% The company faces a 40% tax rate and is in stable growth, growing 3% a year. You have run a regression for the EV/EBITDA multiple across just farm equipment companies: EV/EBITDA = 3.5+ 26.5 (After-tax return on eapital) + 41.3 (Expected growth) -31.5 (Cost of capital) You also have a regression of Price to Book equity ratios across financial service firms: P/BV 0.70 +9.0 (Return on equity) - 5.0 (Cost of equity) The firm has 800 million shares outstanding. Estimate the value of equity per share in the firm, using relative valuation. (All percentages are entered as decimals in the regression. Thus, 15% would be 0.15) (50 marks) (2) a. What are arguments in favour of using sector-specific multiples? b. When do sector-specific multiples work best? (20 marks) c. Why do multiples generally have skewed distributions? (10 marks) (20 marks) Stryker Inc. is an American farm equipment firm with a financing business. In the most recent year, the firm reported the following breakdown of key operating items (in millions): Sales EBITDA EBIT Net Income BV of equity BV of Debt Cash Cost of equity Cost of capital Farm Equipment $10,000 $1,500 $1,000 $400 $3,000 $2,000 $500 9% 7.50% Financing $2,000 $650 $650 $100 $1,000 $3,000 $500 8% 6.20% Entire firm $12,000 $2,150 $1,650 $500 $4,000 $5,000 $1,000 8.80% 7.00% The company faces a 40% tax rate and is in stable growth, growing 3% a year. You have run a regression for the EV/EBITDA multiple across just farm equipment companies: EV/EBITDA = 3.5+ 26.5 (After-tax return on eapital) + 41.3 (Expected growth) -31.5 (Cost of capital) You also have a regression of Price to Book equity ratios across financial service firms: P/BV 0.70 +9.0 (Return on equity) - 5.0 (Cost of equity) The firm has 800 million shares outstanding. Estimate the value of equity per share in the firm, using relative valuation. (All percentages are entered as decimals in the regression. Thus, 15% would be 0.15) (50 marks) (2) a. What are arguments in favour of using sector-specific multiples? b. When do sector-specific multiples work best? (20 marks) c. Why do multiples generally have skewed distributions? (10 marks) (20 marks)

Answer rating: 100% (QA)

Based on the given information we need to estimate the value of equity per share in Stryker Inc using relative valuation The information given include... View the full answer