Read 2. What are the determinants of Price/Book equity ratio? (10 marks) Conglomerate Inc is a company in three different businesses. In the most recent year, the firm reported the following breakdown of key operating items (in millions): EBIT Depreciation Invested capital Real estate Travel Spa 150 35 100 50 5 20 500 240 600 The company has 100 million shares outstanding, and faces a tax rate of 25%. It has a cash balance of $500 million and Debt of $800 million. The median value for the Enterprise value/EBITDA for the Real estate sector is 6 and for the Travel sector is 10. The current stock price is $22/share. Assuming each of the three businesses are fairly valued at the medians of their sectors, what is the implied median EV/EBITDA ratio for the Spa sector? (5 marks) You believe the Spa business of Conglomerate Inc is better than the sector median and should be valued at EV/EBITDA of 8.5. What is the correct equity value of the company? By how much (in percentage terms) is Conglomerate Inc undervalued? (4 marks) An article in a leading financial daily suggested that FTSE 100 is undervalued relative to the S&P 500 because the Price-to-Earnings ratio of FTSE 100 is lower than that of S&P 500. Do you agree with the author of the article? Give reasons for your answer. (6 marks)