You are reviewing the valuation of Vulcan Enterprises, a private business. The analyst has estimated a value of $ 2.0 million for the company, which is in stable growth and expected to grow 3% a year in perpetuity. The firm has no debt outstanding and is expected to generate an after-tax operating income of $300,000 next year; the return on capital is anticipated to be 15%. The analyst valued the company for a private-to-private transaction, and the
However, the buyer is a publicly-traded firm with diversified investors. The average R-
squared across publicly traded companies in this business is 25%. Estimate the correct value of Vulcan Enterprises for sale to a public buyer.
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