Question
Sean, the founder of SeanCarp Inc, asked to assess the value of equity of his company (SeanCarp Inc), a rapidly growing software firm. You have
Sean, the founder of SeanCarp Inc, asked to assess the value of equity of his company (SeanCarp Inc), a rapidly growing software firm. You have been supplied with the current levels and forecasted revenues and net income of the company for the next 3 years (all in millions):
Current Year | 1 | 2 | 3 | |
Revenues | 500 | 600 | 700 | 800 |
Net Income | 50 | 72 | 98 | 128 |
You have run a regression of PE ratios against expected revenue growth and net margin (i.e. NI/sales) across software firms in the market right now and arrived at the following:
PE = 4.5 + 80 (Annual (CAGR) Revenue growth in next 3 years) + 40 (Current Net Profit margin)
R2 =60% (The regression uses decimals. Net margin of 20% would enter the equation as 0.2)
- 23.4
- 24.47
- 17.33
- None of the above
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