Would the owner prefer the dcf

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Management expects revenues, cost of goods sold, operating expenses, depreciation (and amortization), and capital expenditures to grow 20% annually for the next five years with taxes remaining at 40% for each year. Balance sheet items in the most recent year include $10 million of outstanding, interest-bearing debt and $10 million book value of equity. The outstanding debt is expected to remain constant for this analysis, and management anticipates no changes in working capital. Free cash flows are estimated to grow at 5% after the five year period. Industry averages for market value of equity are three times book value, for beta are 1.30, and for market debt ratio are 20%. Average market multiple for the industry is 1 times current year revenue, and the Treasury bond rate is assumed to be 7%.

Show DCF and Market Multiple analysis (in Excel) to help the owner estimate firm value.

Include: Annual Free Cash Flows • Cost of debt • Cost of equity • WACC • Terminal Value • Firm Value, Debt Value, and Equity Value

Would the owner prefer the DCF or Market Multiple approach to valuation? Why?

Reference no: EM132774572

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