Valuation using the multiple EV-EBITDA ratio

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Reference no: EM132397673

Suggested Questions

1. Valuation using the DDM

A. Financial analysts believe that Volkswagen will increase its dividends at an annual rate of 3%.

Use the Dividend Discount Model (DDM) to estimate the value of Volkswagen stock for different discount rates (e.g. covering a range from 5.50% to 10.00%: 5.50%, 5.75%, 6.00%, etc.).

How sensitive is the valuation to the discount rate?

B. At what annual rate would dividends have to grow in the long term to justify paying €250 per share for Volkswagen stock? (Note: Use a discount rate of r=7%). Is this a sensible number? Why?

C. Assume that Volkswagen increases its dividends at the annual rate of g1=2% over the period 2009-2015 and at g2=5% a year on from then. What would the value of Volkswagen stock be then?

D. Financial analysts expect Volkswagen to be trading at €70 per share by the end of 2013. What would the value of Volkswagen stock be then if this forecast is correct?

How sensitive is your result to the dividend growth rate that you use? Compare your results to the long-run stock price performance (Exhibit 2 in the case).

2. Valuation using the multiple P/E ratio

A. Volkswagen's P/E multiple is 21, while the industry average is 7.58.

Klaus Farra is thinking about multiplying the industry P/E ratio by Volkswagen's EPS to find a fair valuation of Volkswagen's shares.

Is this the right way to proceed? Does this imply that Volkswagen is over-valued, under-valued or correctly priced in December 2008?

B. What should be the comparable firms' set for the P/E analysis? Think about the factors affecting your choice. [Solution by the case's authors: consider Toyota, Honda, Fiat, Renault and BMW)

C. What is the value of Volkswagen stock using P/E multiples valuation?

3. Valuation using the multiple EV/EBITDA ratio

A. What are the right companies for the comparable set in the EV/EBITDA ratio analysis?

What value do you obtain for the multiple? [Solution by the case's authors: consider Daimler, Peugeot and Renault]

B. What is the value of Volkswagen stock using EV/EBITDA multiples valuation?

Attachment:- Volkwagen AG-valuation in 2009.rar

Attachment:- Suggested Questions.rar

Reference no: EM132397673

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