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You have been asked to review the valuation of a privately - owned family business for an all - equity funded transaction. The analyst who
You have been asked to review the valuation of a privatelyowned family business for an allequity funded transaction. The analyst who valued the business arrived at a value of $ million, based upon a cost of equity of and an expected growth rate of a year forever. She has made two mistakes:
The FCFF was computed without considering the salaries that would need to be paid to family members who work at the firm. You estimate that these salaries would amount to $ million next year, after taxes.
The potential buyer is a publicly traded company, whose investors are diversified. You believe that only of the risk in this company is market risk.
If the riskfree rate today is the equity risk premium is estimate the fair value for the firm in this transaction.
asnwer is million
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