What is the value of the two companies

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XYZ Company is exploring two mutually exclusive opportunity. There are two available opportunities for XYZ with the following information:

a. ABC Company has projected annual returns of Php7 Billion and outstanding liabilities of Php5 Billion.

b. DEF Company has projected annual returns of Php12 Billion and outstanding liabilities of Php20 Billion.

c. Both companies has terminal value of Php100 Billion.

Problem 1: If you will assess the company for five years with the required rate of return of 10%, which company will you recommend purchasing and how much? Why?

Problem 2: Using the information in No. 1, which is a better choice if the initial investment for ABC Company and DEF Company is Php50 Billion and Php110 Billion, respectively. The cost of capital for the two companies are 10%.

Problem 3: XYZ Company is offered to purchase ABC Company with EPS of Php12 and P/E ratio of 5; while DEF Company has EPS of Php15 and P/E ratio of 4. What is the value of the two companies? Which one is a better? Why?

Reference no: EM132807804

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