Question 4

You expect Mynga, a publicly trading gaming company to generate $450 million in revenues, $30 million in after- tax operating income and return on capital (post tax) of 14% next year. Through your research you have come to know the following f or a typical gaming company;

• is in stable growth phase with a growth rate of 2.1% forever
• After tax operating margin (ATOM) is 60% of Mynga
• Sales to capital ratio is 2 times of Mynga
• Median EV/Sales is 0.6
• all the companies are fairly valued
• share the same cost of capital and growth rates with Mynga

Estimate the EV/Sales ratio for Mynga