BigCos Chief Financial Officer is trying to determine a fair value for PrivCo, a non-publicly traded firm that BigCos is considering acquiring. Several of PrivCos competitors, Ion International, and Zenon are publicly traded. Ion and Zenon have price-to-earnings ratios of 20 and 15, respectively. Moreover, Ion and Zenons shares are trading at a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA) of 10 and 8, respectively. BigCo estimates that next year PrivCo will achieve net income and EBITDA of $4 million and $8 million, respectively. To gain a controlling interest in the firm, BigCo expects to have to pay at least a 30% premium to the firms market value.

1.What should BigCo expect to pay for PrivCo based on Price to Earnings ratios?

2.What should BigCo expect to pay for PrivCo based on EBITDA?