Question on multiples and perpetuities

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Multiples and Perpetuities 

Let's take a look at three major retailers and see what the market thinks about their implied discount rates and growth rates.  The three retailers we'll be looking at are: Walmart (a discount retail chain), Costco (a wholesale bulk consumer retailer), and Amazon (an online retailer).  We'll be comparing their Enterprise Value, which is a measure of the total market value of their debt and equity, to their EBITDA.

  • Walmart has an Enterprise Value to EBITDA of 7.97. 
  • Costco Wholesale has an Enterprise Value to EBITDA of 13.57.
  • Amazon has an Enterprise Value to EBITDA of 46.42.

Assuming that all three companies are growing at steady rates, what does this multiple imply about how the market feels about the implied discount rates and growth rates for these companies?

This will use a bit of ratio math to determine exactly. Don't worry if you're struggling with the math - think about the intuitions.

Reference no: EM133061551

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