A venture capitalist wants to estimate the value of a new venture. The venture is not expected to produce net income or earnings until the end of year 5 when the net income is estimated at $1,600,000. A publicly traded competitor or “comparable firm” has current earnings of $1,000,000 and a market capitalization value of $10,000,000. a.Estimate the value of the new venture at the end of year 5. Show your answer using both direct comparison method and the direct capitalization method. What assumption are you making when using the current price-to-earning relationship for the comparable firm
A venture capitalist wants to estimate the value of a new venture. The venture is not expected to produce net income or earnings until the end of year 5 when the net income is estimated at $1,600,000. A publicly traded competitor or “comparable firm” has current earnings of $1,000,000 and a market capitalization value of $10,000,000. a.Estimate the value of the new venture at the end of year 5. Show your answer using both direct comparison method and the direct capitalization method. What assumption are you making when using the current price-to-earning relationship for the comparable firm
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A venture capitalist wants to estimate the value of a new venture. The venture is not expected to produce net income or earnings until the end of year 5 when the net income is estimated at $1,600,000. A publicly traded competitor or “comparable firm” has current earnings of $1,000,000 and a market capitalization value of $10,000,000.
a.Estimate the value of the new venture at the end of year 5. Show your answer using both direct comparison method and the direct capitalization method. What assumption are you making when using the current price-to-earning relationship for the comparable firm?
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