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Q. New Line technologies Ltd. is planning to acquire Frontline Technologies Ltd. as part of its expansion strategy. To arrive at a reasonable estimate of valuation of the target firm, it is planning to use the comparable company’s financial data. The Following financial information is presented for a competitor, Block Chain Technologies, Inc.
Financial Year 2019 All values are in INR millions except per share data |
||
Sales |
235 |
|
EBIT |
65 |
|
Net Income |
51 |
|
Basic Shares Outstanding |
5.5 |
|
EBITDA |
76 |
|
Market Price per share (INR) |
135 |
|
Total Assets |
322 |
|
Long-Term Debt |
70 |
|
Share Holders' Equity |
145 |
|
Liabilities & Shareholders' Equity |
322 |
|
Net Operating Cash Flow |
73 |
Required: Derive the valuation estimate per share of equity for New Line Technologies if it is reporting the following financials:
Revenue: INR 100 million; EBIDTA: INR 40 million; Net Income: INR 28 million;
Book Value: INR 100 million; Basic Share outstanding: 15 million.
Given data follows below :
Net Income of New Line technologies Ltd = 51.
Basic Shares Outstanding of New Line technologies Ltd =5.5
EPS of blockchain
Net Income of New Line technologies Ltd / Basic
Shares Outstanding of New Line technologies Ltd
= 51 / 5.5
= 9.27
EPS of blockchain = 9.27
Calculating PE Ratio of Blockchain
Given Market Price per share (MPS) of blockchain = 135
= Market Price per share / EPS of blockchain.
= 135 / 9.27
= 14.56
Calculating EPS of Frontline
Given Net income = 28 Million.
Basic Share outstanding =15 million.
Net income / Share outstanding
= 28 / 15
= 1.87
Calculating Market Price per share (MPS) of Frontline
= EPS * PE ratio
= 1.87 * 14.56
= 27.23
Now Calculating Value of firm
Market Price per share (MPS) of Frontline * Book Value.(100)
= 27.23 * 15 million shares
$ 408.45 Million
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