Relative Valuation Method
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	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	2,800,000	0
Long-term debt	0	750,000,000	124,500,000	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	411,800,000	9,993,000,000
Calculated EPS	(0.39)	0.36	0.64	0.93

Google Inc. of Mountain View, California went public using an unconventional Dutch auction method on August 19, 2004. The resulting IPO was the largest Internet IPO ever, raising $1.67 billion and leaving the firm with 271,219,643 shares of common stock. 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.

a. Use the data found in the Exhibit for the following companies as comparables in your analysis: Earthlink, Yahoo!, eBay, and Microsoft. Compute the P/E ratio, Enterprise value and EBITDA multiple for each comprable firm using their year-end 2003 financial information.

b. Estimate the IPO price of Google's common shares using EBITDA multiple method. Compute the EBITDA of each of the comparable firms separately, and then use an average "multiple" of the comparable firms.

c. Estimate the IPO price of Google's common shares using P/E ratio method. Compute the P/E of each of the comparable firms separately, and then use an average "P/E" of the comparable firms.