Answered step by step
Verified Expert Solution
Question
1 Approved Answer
(b) Venture Capital (VC) firms often use the relative valuation method to value startup companies. For example, a VC that invested in a pharmaceutical start-up
(b) Venture Capital (VC) firms often use the relative valuation method to value startup companies. For example, a VC that invested in a pharmaceutical start-up A developing vaccines would use the average price-to-earnings (PE) ratio of public-listed pharmaceutical companies such as Pfizer, AstraZeneca, and Johnson&Johnson. Suppose the current average PE ratio for pharmaceutical companies is equal to 30, and this start-up is expected to generate a total of $10 million in profits in 2024, what is the valuation for this start-up? In your opinion, what are the main advantage(s) and disadvantage(s) of this relative valuation method? (4 marks) (c) Based on what we have learned in this unit, what would be an alternative valuation method to value start-ups? (1 mark)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started