#$6.$ The No Perfectly Comparable Company$$s $($NPC$)$ revenues as well as its income statement

and free cash flow components grow at a constant $2\%$ growth rate. See the exhibit below $($which

is also in problem $6$ tab of the pset$3.$xls spreadsheet$)$ for an abbreviated income statement and

balance sheet. The DCF valuation of the company is $$10,000,$ its cost of capital is $14\%,$and its

growth rate is $2\%($you can check this with the data given$).$ An analyst valued the NPC using a

comparable company. The comparable company was comparable on all relevant market multiple

determinants except that it has an income tax rate equal to $80\%$ of the NPC$$s income tax rate and

an operating expense ratio equal to $95\%$ of the NPC$$s Operating Expense ratio. Measure the

percentage error in NPC$$s valuation resulting from using each of the following market multiples

based on Firm$/$Enterprise value as of the end of year $0$ divided by the expected denominator in

the model for Year $1($that is$,$ use the forward looking multiple to answer this question$).$

Multiples to use: unlevered earnings multiple, EBIT multiple, EBITDA multiple, revenue

multiple. Note that net operating assets in the table is the same thing as what we have often

called net working capital and net fixed assets is the same thing as what we have called net

property plant and equipment.

Year $0$ Year $+1$

Revenue $$7,843\mathrm{.}18,000\mathrm{.}0$

Operating Expenses $-4,705\mathrm{.}9-4,800\mathrm{.}0$

EBITDA $$3,137\mathrm{.}33,200\mathrm{.}0$

Depreciation $-784\mathrm{.}3-800\mathrm{.}0$

EBIT $$2,352\mathrm{.}92,400\mathrm{.}0$

Interest $0\mathrm{.}00\mathrm{.}0$

EBT $$2,352\mathrm{.}92,400\mathrm{.}0$

Taxes $-941\mathrm{.}2-960\mathrm{.}0$

Earnings $$1,411\mathrm{.}81,440\mathrm{.}0$

Net Operating Assets $$1,568\mathrm{.}61,600\mathrm{.}0$

Net Fixed Assets $10,431\mathrm{.}410,640\mathrm{.}0$

Total Assets $=$ Equities $$12,000\mathrm{.}012,240\mathrm{.}0$