Does higher growth lead to a higher multiple in this case

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You are valuing multiple steady-state companies in the same industry. Company A id projected to earn $160 million in EBITA next year, grow at 2 percent per year, and generate ROICs equal to 15 percent.

Company C is projected to earn $160 million in EBITA next year, grow at 5 percent per year, and generate ROICs equal to 12 percent.

Both companies have an operating tax rate of 25 percent and a cost of capital of 10 percent.

What are the enterprise-value-to-EBITA multiples for both companies? Does higher growth lead to a higher multiple in this case?

Reference no: EM132048583

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