1. a) Assume that you want to estimate a value for Firm Z using comparable firm data and that we have a set of comparable firms based on characteristics like sales, firm age, and products or services as shown in the table below. Considering the series of ratios given from our comparable firms, calculate an average for each ratio, multiply that average ratio by the appropriate Firm Z financial data and estimate the average share price from the different Firm Z estimates. Firm Zs financial data is $120 in Sales, $62.5 in Book Value of Equity, and $7.5 in Net Income.

Ratio A B C Average

MV of Eq/Sales 1.5 1.25 1.0

MV of Eq/Book 2.0 1.5 1.6

MV of Eq/NI 17 25 22

Firm Z Data $ Averages E(Equity)

Sales $120.0

BV of Equity 62.5

Net Income 7.5

Average

b) Assume that you want to estimate a value for Firm Z using comparable M&A transaction data (or enterprise value) and that we have a set of comparable M&A transactions based on target firm characteristics like sales, firm age, and products or services as shown in the table below. Considering the series of ratios given from our comparable transactions, calculate an average for each ratio, multiply that average ratio by the appropriate Firm Z financial data and estimate the average share price from the different Firm Z estimates. Firm Zs financial data is $120 in Sales, $62.5 in Book Value of Equity, and $7.5 in Net Income.

Ratio A B C Average

MV of Eq/Sales 1.6 1.8 2.0

MV of Eq/Book 2.5 2.4 2.2

MV of Eq/NI 30 22 25

Firm Z Data $ Averages E(Equity)

Sales $120.0

BV of Equity 62.5

Net Income 7.5

Average

c. Calculate the difference between the two share price estimates and provide a brief description of that difference.

i