An analyst has estimated the value of a company using two valuation methodologies. The discounted cash flow (DCF) value is $200 million, comparable recent transactions’ value is $225 million. The purchase price paid for the recent comparable transaction included a 20% premium. The analyst has greater confidence in the comparable transaction method and therefore gives a weight of 60% to this methodology, with 40% weight to the discounted cash flow methodology. Estimate the weighted average value of the firm using these two valuation methodologies and using the weights or relative importance the analyst gives to each methodology.

Solution : Given Value using the DCF method =$200 million Value using comparable recent…

Answered: An analyst has estimated the value of a…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An analyst has estimated the value of a company using two valuation methodologies. The discounted cash flow (DCF) value is $200 million, comparable recent transactions’ value is $225 million. The purchase price paid for the recent comparable transaction included a 20% premium. The analyst has greater confidence in the comparable transaction method and therefore gives a weight of 60% to this methodology, with 40% weight to the discounted cash flow methodology. Estimate the weighted average value of the firm using these two valuation methodologies and using the weights or relative importance the analyst gives to each methodology.

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