1. DiversCo, a large U.S. company, operates in two areas: energy and retail clothing. You observe an analyst report that values DiversCo using multiples analysis based on a peer group of other large U.S. diversified companies. Do you think that this is an appropriate approach? Why or why not? 2. What is a forward-looking multiple? Why should one use forward-looking multiples as opposed to backward-looking multiples when valuing companies?

But if you waited until the next time period, the revenues will be zero for this time period. The reason is that, by definition of the problem, the option expires at the end of the fifth year and becomes worthless if it is not exercised. Therefore, the rational decision at node Sou5 will be to invest ? but not to wait ? and the option value at this node will be $517 million. B. At node Sou2d3, the expected asset value is $119 million if an invest- ment of $200 million is made, resulting in a net loss of $81 million. Therefore, the decision at this node will be not to invest in product development, which means the option value at this node will be $0. C. Next, move on to the intermediate nodes, one step away from the last time step. Starting at the top, at node Sou4, calculate the expected asset value for keeping the option open. This is simply the discounted (at the risk-free rate) weighted average of potential future option values using the risk-neutral probability. That value at node Sou4 is: [p(Sou5) + (1 - p)(Sou4d)] * exp(-r?t) = [0.510($517 million) + (1 - 0.510)($194 million)] * exp(-0.05)(1) = $341 million If the option is exercised at this node by investing $200 million, the payoff would be $531 million (the asset value at Sou4), resulting in a net asset value of $331 million. Since keeping the option open shows a higher asset value ($341 million), you would not exercise the option but instead continue to wait; the option value at this node becomes $341 million. D. Similarly, at node Soud3, the expected asset value for keeping the option open, taking into account the downstream optimal decisions, is: [0.510($0 million) + (1 - 0.510)($0 million)] exp(-0.05)(1) = $0 million If the option is exercised by investing $200 million, the payoff at this node is $88 million (the asset value at Soud3), showing a net loss of $112 million. Therefore, the decision would be to keep the option open. E. Complete the option valuation binomial tree all the way to time = 0

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Score: 0 of 1 pt 12.1.51-BE 13 of 14 (2 complete) HW Score: 15.56%, 2.33 of 15 Assigned Media Question Help The stock price for a certain corporation can be approximated for the years 2011 through 2016 by f(x)=6.7x2-206x + 1665, where x = 11 corresponds to the year 2011. During what year did a local minimum stock price occur? A local extremum occurs at a critical number of f. Because the derivative exists for every x, the only critical number(s) occur where the derivative is zero. Find the derivative of f(x). f'(x)= er so ces 4 cces Lib Enter your answer in the answer box and then click Check Answer. ptio 1 part remaining Clear All Check Answer Questionreturny