You are trying to estimate the brand name value of Zycon Perfume and have collected the following information on Zycon and a generic perfume manufacturer, Cheap Perfume Inc.

Both firms are in stable growth, growing at 5% a year in perpetuity.

a. Estimate the value to sales ratio for Zycon.

b. Estimate the value to sales ratio for Cheap Perfume.

c. If both firms have the same book capital invested ($ 5 billion), estimate the value of Zycon’s brand name.
 

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After-tax Operating Margin Sales/Capital Ratio Cost of capital Zycon Cheap Perfume 20% 2.5 10% 8% 3 10% After-tax Operating Margin Sales/Capital Ratio Cost of capital Zycon Cheap Perfume 20% 2.5 10% 8% 3 10%

Answer rating: 100% (QA)

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