Max founded Hair Beat, which provides overnight organic hydrating hair masks, over several years ago. He invested $2,100,000 of his own funds in Hair Beat at the end of 2015 and now owns 70% of the venture. Max and the investors have decided to harvest the investment at the end of 2019. Icon Beauty Inc. is considering acquiring Hair Beat and they are provided with the following Projected Income Statements for years 2020, 2021, and 2022.

Income Statements	2019	2020	2021	2022
Sales	22,000,000	30,800,000	28,600,000	26,400,000
Cost of goods sold	(11,000,000)	(15,400,000)	(14,300,000)	(13,200,000)
Gross profit	11,000,000	15,400,000	14,300,000	13,200,000
Operating expenses	(7,000,000)	(9,800,000)	(9,100,000)	(8,400,000)
EBITDA	4,000,000	5,600,000	5,200,000	4,800,000
Depreciation	(450,000)	(540,000)	(648,000)	(777,600)
EBIT	3,550,000	5,060,000	4,552,000	4,022,400
Interest	(120,000)	(264,000)	(306,000)	(340,800)
EBT	3,430,000	4,796,000	4,246,000	3,681,600
Taxes (30%)	(1,029,000)	(1,438,800)	(1,273,800)	(1,104,480)
Net income	4,459,000	6,234,800	5,519,800	4,786,080

Icon Beauty Inc. has examined other comparable firms in the industry and believes that Secret Strands and Hyper Mask are the two closest competitors.

Secret Strands has an Enterprise Value of $64,800,000 and EBITDA of $16,200,000 in most recent year.

Hyper Mask has an Enterprise Value of $47,400,000 and EBITDA of $7,900,000 in most recent year.

Icon Beauty believes using the average Enterprise Value to EBITDA ratios of the 2 competitors would be appropriate to determine Hair Beats value. Discount rate is 30%.

Questions:

1. Calculate the enterprise value of Hair Beat as of the end of 2022 using Relative Valuation Method. How much would Icon Beauty Inc. be willing to pay for Hair Beat at the end of 2019? (6 marks)

2. Max also contemplates on exiting the venture by going public. From the perspective of an entrepreneur, what are the advantages of an outright sale over an IPO? (4 marks)