Please use the provided template to solve the question and show work / formula in working cell for a thumb up.

Please use the provided template to solve the question and show work / formula in working cell for a thumb up.

PROBLEM 8-12 MINI-CASE VALUING GOOGLE IPO SHARE PRICE16 Google Inc. of Mountain View, California, operates the most popular and power- 305 ful search engine on the Web. The company went public using an unconventional Dutch auction method on August 19, 2004. The resulting IPO was the largest Exhibit P8-12.1 Financial Information Earthlink (ELINK) Yahoo! (YHOO) eBay (EBAY) Microsoft (MSFT) 2003 shares outstanding 159,399,000 655,602,000 646,819,000 10,800,000,000 2003 fiscal close stock price $ 10.00 $ 45.03 S 64.61 $ 25.64 Market capitalization $1,593,990,000 $29,521,758,060 $41,790,975,590 $276,912,000,000 Short-term debt $ 900,000 $ 0 S 2,800,000 S 0 Long-term debt $ 0 $ 750,000,000 $ 124,500,000 S 0 Cash and equivalents $ 349,740,000 $ 713,539,000 $ 1,381,513,000 $ 6,438,000,000 Short-term investments $ 89,088,000 $ 595,975,000 $ 340,576,000 $ 42,610,000,000 EBITDA $ 218,100,000 $ 455,300,000 $ 818,200,000 $ 14,656,000,000 Net income $ (62,200,000) $ 237,900,000 $ 441,800,000 $ 9,993,000,000 Calculated EPS (0.39) 0.36 0.68 0.93 Internet IPO ever, raising $1.67 billion and leaving the firm with 271,219,643 shares of common stock While Google commands a wide lead over its competitors in the search engine market, it is witnessing increased pressure from well-funded rival entities. Yahoo! Inc., with a market cap of approximately $38.43 billion, is generally regarded as following a business model very similar to Google's. a. Use the data found in Exhibit P8-12.1 for the following companies as comparables in your analysis: Earthlink, Yahoo!, eBay, and Microsoft Compute the IPO value of Google: shares using each of the comparable firms separately, and then use an average "multiple" of the comparable firms. Use the year-end 2003 balance sheets and income statements of the comparable firms to do the analysis. Assume that Google's forecasted values at the time of the IPO are as follows: Net income is $400 million, EBITDA is approximately $800 million, cash and equivalents are $430 million, and interest-bearing debt (total short-term and long-term) equals only $10 million. b. Which of the four comparable firms do you think is the best comparison firm for Google? Why? c. How has the stock performed after the IPO? Do you believe that Google is cur- rently correctly valued in the stock market? Explain your answer. Given EXHIBIT 1 Microsoft MSFT 10,800,000,000 25.64 276,912,000,000 Solution Legend Value given in problem Formula/Calculation/Analysis required = Qualitative analysis or Short answer required Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output Financial Information 2003 Shares Outstanding 2003 Fiscal Close Stock Price Market Capitalization Short Term Debt Long Term Debt Cash & Equivalents Short Term Investments EBITDA Net Income Calculated EPS $ $ $ $ $ S $ $ $ Earthlink Yahoo eBay ELNK YHOO EBAY 159,399,000 $ 655,602,000 $ 646,819,000 $ 10.00 $ 45.03 $ 64.61 $ 1,593,990,000 $ 29,521,758,060 $ 41,790,975,590 $ 900,000 $ $ 2,800,000 $ $ 750,000,000 $ 124,500,000 $ 349.740.000 S 713,539,000 $ 1,381,513,000 $ 89,088,000 $ 595.975,000 $ 340.576,000 $ 218,100,000 $ 455,300,000 $ 818,200,000 $ (62,200,000) $ 237,900,000 $ 441,800,000 $ (0.39) 0.36 0.68 6,438,000,000 42,610,000,000 14,656,000,000 9,993,000,000 0.93 Solution Part a. Earthlink Yahoo eBay Microsoft Averages Price to Earnings multiple Enterprise Value EBITDA multiple Google EBITDA Cash Debt Net income Shares EPS IPO proceeds $ $ $ $ 800,000,000 430,000,000 10.000.000 400,000,000 271,219,643 1.47 1,670,000,000 $ $ Earthlink Yahoo Based on: eBay Microsoft Averages Google's: Imputed IPO price per share from PE ratio Imputed EV from EBITDA multiples Owner's Equity Imputed IPO price per share based on OE Part b. (which company is the best comp, and why?) Part c. (How has Google performed post-IPO? Is it currently valued correctly?)