Tutorial Questions on Value Multiples

1. Consider a company with an ROC of 20%, debt-equity ratio of 1:3, after-tax cost of debt of 6%, cost of equity of 18%, a reinvestment rate of 50% and an after-tax operating margin of 10%. The marginal corporate income tax rate is 50%. Based on a single-stage FCFF valuation model of this rm, determine what the following value multiples for this company will be equal to: (A) EV/Book value of capital. (B) EV/Sales. (C) EV/EBIT(1-t). (D) EV/EBIT. 2. Consider the data on cosmetics companies from Illustration 9.4 (slides 2930 in val9.pdf). The spreadsheet with the data is available for download from http://www.stern.nyu.edu/adamodar/pc/dam2ed/cosmetics.xls. (A) Replicate the regression results on slide 30 in val9.pdf. (B) What are the t-statistics and p-values of the intercept and slope coecient on ROC equal to? (C) What is the regression-adjusted EV/Capital multiple for LOreal? (D) Is LOreal undervalued or overvalued in the market place? 3. Consider the data on chemicals companies from Illustration 9.5 (slides 3132 in val9.pdf). The spreadsheet with the data is available for download from http://www.stern.nyu.edu/adamodar/pc/dam2ed/chemicals.xls. (A) Replicate the regression results on slide 32 in val9.pdf. (B) What are the t-statistics and p-values of the intercept and slope coecient on ATOM (after-tax operating margin) equal to? (C) What is the regression-adjusted EV/Sales multiple for Victrez Plc? (D) Is Victrez Plc undervalued or overvalued in the market place?