Lecture 4: General Valuation Techniques

Question 1

What is the market based valuation technique?

Answer 1

MVcompetitor / VIcompetitor * VItarget

Question 2

What it the EV to EBITDA formula?

Answer 2

MVfcff + MVpf + (MVd - Cash) / EBITDA

Question 3

What is the MVdebt formula?

Answer 3

expense * (1 - (1 / (1+i)^n)) / i) + D / (1+i)^n

PVi + PVd

Question 4

What is the PEG ratio formula?

Answer 4

(MVc / VIc) / VIg = PEG

PEG * VItg * VIt

Question 5

What are the challenges of valuing privately held firms?

Answer 5

• lack of general information
• lack of intangible assets information
• lack of internal controls and information systems
• revenue may be understated and liabilities overstated to reduce tax liabilities

Question 6

What is the adjustment for the liquidity discount?

Answer 6

PVadj = PV(1-LD%)

Question 7

What is the formula for the liquidity discount and control premium?

Answer 7

PV = PV(1-LD%)(1+CP)

Question 8

What is the formula for the liquidity discount and minority discount?

Answer 8

PVadj = PV(1-LD%)(1-MD%)

Question 9

What is the formula for the minimum value?

Answer 9

PVmin = PVmarketvalue

Question 10

What is the formula for the maximum value?

Answer 10

PVmax = PVmarketvalue + PVnetsynergy

Question 11

What is the formula for the initial offer price value?

Answer 11

PViop = PVmv + alpha * PVnetsynergy

Alpha is the amount of synergy willing to share

Question 12

What is the share exchange ratio?

Answer 12

SER = negotiated price of target stock / acquirers share price