Sonia Essay

For calculations of the acquisition price, the P/E is taken to be 8.6. The acquisition price is calculated by multiplying this value with the historical average of net income. Thus, the acquisition price comes out to be $186,215,800, which is $189,186,673 less than the enterprise value.

The chart to the left shows the relative return on equity for EBAY and its competitors. It clearly indicates

Assumptions need to be made for the Cost of Equity. We used the corporate rate of 11.766%

Mortensen’s cost of capital estimates are used for a variety of purposes at both the divisional and corporate levels. Examples include internal analyses such as financial accounting, performance assessment and capital budgeting, while others are used for strategic planning purposes such as merger and acquisition, as well as stock repurchase decisions (Luehrman and Heilprin, 2009, pg.1). When used at the divisional rather than corporate level, special consideration should be given to the fact that Midland’s divisions are not publicly traded entities, and therefore do not have individual Beta

EBITDA - Earnings before interest, taxes, depreciation and amortization is an indicator of a company's financial performance which is calculated in the following manner: ("EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization Definition | Investopedia," n.d.)

The Return on Equity ratio is a measure of the efficiency with which a company employs owners’ capital. It

Any profits remaining after deducting operating costs, interest payments, taxation, and dividend are reinvested in the business and regarded as part of the equity capital. The finance manager will monitor the long-term financial structure by examining the relationship between loan capital, where interest and loan repayments are contractually obligatory, and ordinary share capital, where dividend payment is at the discretion of directors. This is known as gearing. There are two basic types of gearing, they are capital gearing which indicates the proportion of debt capital in the firm’s overall capital structure; and income gearing indicates the extent to which the company’s income is pre-empted by prior interest charges. Both are indicators of financial gearing.

fraction of pretax earnings that the shareholders keep. One minus that ratio is the average tax rate so the

Used Lower side of EBITDA Multiples: Dillon report does not justify that why they should take lower side of multiples. Even though JP Morgan valuation proposed such low multiples, but failed to indicate how it arrived at this multiple value.

Suggested ratios to shoot for are found by putting them into the context of various industry figures. By using other firms as a yardstick, you can then assess where your values need to fall to be competitive with other firms similar to your own.

Market value proportions of: Debt = $1,147,200 / $4,897,200 = 23.4% Pref. Share = $1,250,000 / $4,897,200 = 25.5% Common equity = $2,500,000 / $4,897,200 = 51.1%

c. Is your estimate of Lex’s cost of equity appropriate as a discount rate for Lex’s total operating cash flows? Why or why not?

If the market value of a stock is lower than its intrinsic value, this stock is defined as “trades at a discount”. To figure out whether AGI stock is traded at a discount to comparable companies, as its management believed, we can simply apply multiple which comes from the average multiple of its comparable companies. Considering fluctuation of future after-tax earnings caused by the change in capital structure, we prefer to use TEV/EBITDA multiple in this case. Amtelecom Group consists of two lines of business which has to been taken into consideration. We separately calculate the value of both companies and their

Answer: EBIDTA figure inflates the earning of the firm, as it ignores “all the bad stuff” in its abbreviation. Furthermore, it is a pro forma figure which is very vulnerable to accounting manipulation. Martin’s target price was $50 and her projections for EBITDA were realized. According to her analysis Cox traded at 13.3X EBITDA, and Martin’ s target price would translate into a 20.9X.

3.3 Calculating the costs of equity by the earnings capitalization ratio, and its advantages & disadvantages i. Calculation (based on EXIHIBIT 1&4) According to the earnings capitalization model, we have cost of equity = E1 / P0 = 2.16 / 42.09 = 5.13%