WebSmart is a relatively new Internet company that sells educational products on the web. The firm focuseson students preparing for college entrance exams. The key competitive advantage at WebSmart is its highlyregarded publication, Guide to Competitive Colleges, which is sold widely in bookstores and on Amazon.com. The firm has grown rapidly and now is seeking additional venture capital investment to allow it toimprove its operations and provide additional advertising and promotion. One of the venture capital firmsthat WebSmart approached has asked WebSmart to provide an estimate of the firm’s value. Relevant financial information about WebSmart from the most recent financial statement follows. WebSmart owns nosignificant fixed assets but operates out of leased space. WebSmart management knows that the medianstock price-to-sales multiple in the industry is approximately 7.Total assets per most recent financial statements $1,450,000Total book value of equity, per most recent financial statements 1,200,000Estimated market value of Guide to Competitive Colleges 1,350,000Net income (loss) (85,000)Cash flow from operations (165,000)Total revenues 600,000Required Develop an estimate of the value of WebSmart and explain your reasoning.
WebSmart is a relatively new Internet company that sells educational products on the web. The firm focuses
on students preparing for college entrance exams. The key competitive advantage at WebSmart is its highly
regarded publication, Guide to Competitive Colleges, which is sold widely in bookstores and on Amazon.
com. The firm has grown rapidly and now is seeking additional venture capital investment to allow it to
improve its operations and provide additional advertising and promotion. One of the venture capital firms
that WebSmart approached has asked WebSmart to provide an estimate of the firm’s value. Relevant financial information about WebSmart from the most recent financial statement follows. WebSmart owns no
significant fixed assets but operates out of leased space. WebSmart management knows that the median
stock price-to-sales multiple in the industry is approximately 7.
Total assets per most recent financial statements $1,450,000
Total book value of equity, per most recent financial statements 1,200,000
Estimated market value of Guide to Competitive Colleges 1,350,000
Net income (loss) (85,000)
Cash flow from operations (165,000)
Total revenues 600,000
Required Develop an estimate of the value of WebSmart and explain your reasoning.
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