A Parry Electronics is a regional electronics wholesaler

and distributor that #2917

a.Parry Electronics is a regional electronics wholesaler and distributor that earned $ 1,250,000
in EBITDA this year based on revenues of $ 4,000,000. The enterprise values of publicly traded
firms that operate in the same industry currently are valued at five to six times their current
EBITDA. What is your estimate of the enterprise value of Parry Electronics? If Parry is small
relative to the size of the comparison firms, with assets only one-tenth the size of the largest
firm in the industry how would this influence your valuation estimate? Explain. b. Suppose we
have two companies, A and B that produce identical products using slightly different production
processes. The process used by company A requires more capital equipment, which is already
paid for, and can produce the product at lower per-unit costs. Now assume that you have been
asked to value company B, which is privately held, and that you want to use company A, which
is publicly traded, as the basis for your valuation. Discuss how differences in the production
processes of these firms affect both their multiples and discount rates. Relate your answer to
the discussion of the valuation of the two office buildings discussed in the chapter. c. In the tech
sector, the price of an IPO is often stated as a multiple of its sales, which is then compared to
the price/ sales ratio of comparable firms. Why do you think that analysts use price/ sales ratios
in this setting rather than price/ earnings ratios?View Solution:
A Parry Electronics is a regional electronics wholesaler and distributor that

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