Based on price-to-earnings ratios

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Reference no: EM131851074

BigCo’s Chief Financial Officer is trying to determine a fair value for PrivCo, a non-publicly traded firm that BigCo’s is considering acquiring.

Several of PrivCo’s competitors, Ion International, and Zenon are publicly traded. Ion and Zenon have price-to-earnings ratios of 20 and 15, respectively.

Moreover, Ion and Zenon’s shares are trading at a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA) of 10 and 8, respectively.

BigCo estimates that next year PrivCo will achieve net income and EBITDA of $4 million and $8 million, respectively. To gain a controlling interest in the firm, BigCo expects to have to pay at least a 30% premium to the firm’s market value.

What should BigCo expect to pay for PrivCo?

Based on price-to-earnings ratios?

Based on EBITDA?

Reference no: EM131851074

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