Practice Questions Lecture 3 solution

Practice Questions Lecture 3 solution - FINA 5512 VALUATION...

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FINA 5512 VALUATION Lecture 3 Applying Relative, Asset Oriented, Valuation Methods to Mergers and Acquisition Chapter 8: Question 8.21 Answer: Ajax is most overvalued and Comet is most undervalued. Industry average PEG ratio:10/8 = 1.25 Market Value of AJAX = 1.25 x 10 x $24 = $300 million Market Value of BABO = .1.25 x 12 x $22 = $330 million Market Value of COMET = 1.25 x 14 x $17 = $298 million Current Market Value Estimated Market Value Difference AJAX $375 $300 $75 BABO $310 $330 $(20) COMET $265 $298 $(33) Question 8.22 Answer: $690 million Estimated Value ($ Millions) Relative Weight (As Determined by Analyst) Weighted Average ($ Millions) 672 .50 336.0 650 x 1.2 =780 .30 234.0 500 x 1.2= 600 .20 120.0 1.00 690.0 Question 8.24 Answer: $94.93 million PV 20 = 5(1.20) + 5(1.2) 2 + 5(1.2) 3 + 5(1.2) 4 + 5(1.2) 5 + 5(1.2) 5 (1.04)/(.12-.04) (1.15) (1.15) 2 (1.15) 3 (1.15) 4 (1.15) 5 (1.15) 5 = 5.22 + 5.44 + 5.68 + 5.93 + 6.19 + 80.41 = 108.87 PV 10 = 5(1.10) + 5(1.1) 2 + 5(1.1) 3 + 5 (1.1) 4 + 5(1.1) 5 + 5(1.1) 5 (1.04)/(.12-.04) (1.15) (1.15) 2 (1.15) 3 (1.15) 4 (1.15) 5 (1.15) 5 = 4.78 + 4.57 + 4.38 + 4.19 + 4.01 + 52.1 = 74.03
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EV = .6 x 108.87 + .4 x 74.03 = 94.93 Practice Problems and Answers: 1. As a result of a maturing product market, Passe Inc. projected future cash flows for the next five years of $(50), $15.0, $10.0, $6, $4, $2, and $.5. The sizeable negative cash
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