1a. Your target firm has:

Revenues	$137
Net income	28
Debt	12
Shares outstanding	36
Stock price	40.36

Using the EV/revenues method, find an estimate of its stock price.

Average EV/revenues of comparable firms is 5.85.

1b. Your target firm has:

Revenues	$320
Net income	62
Debt	79
Shares outstanding	5.8
Stock price	82.01

Using the P/E method, find an estimate of its stock price.

Average P/E of comparable firms is 4.5.

1c. You are considering changing the capital structure of the target firm after five years. How much would this increase the value of the target by?

• Current WACC = 10%
• New WACC = 8%
• PV of cashflows of first five years = $128
• You expect the cashflows to grow at 3% every year after year five. CF6=$38.

Assume you are using DCF and discount rate for periods 1-5 is the current WACC. (You aren't changing the structure until then.)