Eight Questions About Valuing Companies

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Investment Valuation

The value of ABV's equity per share can be calculated as follows. First, calculate the value of the operating assets, so EBITDA less the tax rate, adjusted downward for the reinvestment rate and then multiplied by the perpetual growth rate. This is then divided by the cost of capital less the growth rate:

To this, the cash should be added, the debt subtracted to get the value of the equity:

And this is divided by the number of shares 200 million, to give an earnings per share of:

If there are equity options on the shares, then those options would be subtracted from the share value. The value of the options is 50 * 5 = $250 million. This is then subtracted from the equity value above 799.90-250.00 = 599.90

And this is then divided by the number of shares outstanding 599.90 / 200 = $3.00

With the treasury stock approach, the first step is to calculate the exercise proceeds from the options: 6 * 50 = $300 million.

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Then the Treasury Stock value per share has to be calculated:

= (Value of Equity + Exercise proceeds) / (# of shares + # of options)

= (799.9 + 300) / (200 + 50) = $4.40 per share

4. First, the enterprise value should be calculated: Me = $25 billion, Md = $5 billion = Market value of $30 billion. Less the cash ($3 billion) = enterprise value of $27 billion.

The cost of capital is calculated using the WACC = 12.5 (25/30) + 5 (5/30) = 11.25%

Then the following step can be used:

Enterprise Value = EBIT (1-t)(1-Reinvestment rate) (1+g)(r-g)

27000 = EBIT (1-.3)(1-.06/.15)(.1125/.06)

EBIT = $3,184 million.

5. a. You would expect to see $1.2 billion in EBIT in the consolidated statement, reflecting the EBITs of both of these companies. .

b. 400 (1-.4)(1+.11)/(.10-.05) = $5,328 million

This is for 100%.....

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