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Unformatted text preview: Each asset is treated as if no additional value is created by operating the assets as part of a going concern. • Each asset’s value is summed to determine the aggregate value of the business. • This approach is limited if the firm is highly profitable (suggesting a high going concern value) or if many of the firm’s assets are intangible 16 Weighted Average Valuation Method An analyst has estimated the value of a company using multiple valuation methodologies. The discounted cash flow value is $220 million, comparable transactions’ value is $234 million, the P/E-based value is $224 million and the liquidation value is $150 million. The analyst has greater confidence in certain methodologies than others. Estimate the weighted average value of the firm using all valuation methodologies and the weights or relative importance the analyst gives to each methodology. Estimated
Value ($M) Relative Weight Weighted
Avg. ($M) DCF 220 .30 66.0 Comp Transact 234 .40 93.6 P/E 224 .20 44.8 Liquidation 150 .10 15.0 1.00 219.4 17 Adjusting Firm Value
• Generally, the value of the firm’s equity is the sum of the value of the firm’s operating assets and liabilities plus terminal value less market value of firm’s long-term debt.
• Make adjustment for non-operating assets or liabilities.
• Example: A target firm has the following characteristics:
• An estimated enterprise value of $104 million
• Long-term debt wh...
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