Question
Please Help Photon Inc. is considering acquiring one of its competitors. Photons management wants to buy a firm it believes is most undervalued. The firms
Please Help
Photon Inc. is considering acquiring one of its competitors. Photons management wants to buy a firm it believes is most undervalued. The firms three major competitors, AJAX, BABO, and COMET, have current market values of $375 million, $310 million, and $265 million, respectively. AJAXs FCFE is expected to grow at 10 percent annually, while BABOs and COMETs FCFE are projected to grow by 12 and 14 percent per year, respectively. AJAX, BABO, and COMETs current year FCFE are $24, $22, and $17 million, respectively. The industry average price-to-FCFE ratio and growth rate are 10 and 8%, respectively. Estimate the market value of each of the three potential acquisition targets based on the information provided? Which firm is the most undervalued? Which firm is most overvalued?
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