How does firm size of affect risk and required return

Assignment Help Accounting Basics

Reference no: EM132968346

1. How does firm size of affect risk and required return?

2. How would you estimate the beta for a publicly traded firm? For a private firm?

3. Explain the difference between equity and enterprise cash flow.

4. What is the appropriate discount rate to use with equity cash flow? Why? With enterprise cash flow? Why?

5. Practice Problem 1: Variable Growth Model

6. Practice Problem 2: Asset Based Methods

7. Practice Problem 3: Quick Quiz

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: EM132968346

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