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The fifty-year-old chairman and major shareholder of Private Health, a private regional maintenance Organization (HMO), is considering selling his stake in the company and retiring.
The fifty-year-old chairman and major shareholder of Private Health, a private regional maintenance Organization (HMO), is considering selling his stake in the company and retiring. He has asked Private Health's chief financial officer (CFO) to estimate the total value of the firm of the firm by the following morning. The CFO collects data (below) for the 2015 financial year (amounts in millions of dollars unless indicated) for Private Health and two comparable publicly traded firms. Happy Health Care and Community Health. What was her estimate of Private Health's total firm value based on the method of Comparable? (ii) What underlying economic principle forms the basis of the method of comparable? (iii) What are the strengths and weaknesses of the method? (iv) Branded food companies command the highest price-earnings multiple and Transportation/Trucking companies the lowest. Why? (v) You estimate the value of a firm using the Method of Comparable, applying a multiplier M = 10 to the Cash Flow. If you now estimate the DCF value of the firm assuming a constant perpetual growth g=2%, what value of the discount rate the DCF valuation would reconcile the DCF value with the value from Comparable
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