Question

Competitor Landscape Competitors Enterprise Value Free Cash Flow Lammle’s Boot $8,032,000 $848,092 Canada Boot Apparel $9,243,000...

Competitor Landscape

Competitors

Enterprise Value

Free Cash Flow

Lammle’s Boot

$8,032,000

$848,092

Canada Boot Apparel

$9,243,000

$275,466

Stampede Boot Company

$6,503,000

$909,200

Boots Boots Boots

$7,434,000

$450,950

The competitor landscape refers to comparable investments for Beauty Boots Inc. (BB Inc.). BB Inc. has expected EBIT of $500,000 and a Free Cash Flow of $555,555 next year. The interest expense is $2,000 and the tax rate is 30%. The company has $3,900,000 of Debt and $200,000 of Cash and 300,000 Shares Outstanding. What is your best estimate of the share price of Beauty Boots Inc.?

Homework Answers

Answer #1

Since no other information is given, we would assume that the capital structure of all the competitors is same as our target company. Hence, we will calculate the EV/Cashflow ratio of all the companies and then average it to get the industry EV/Cashflow ratio.

Hence, the average will be = (8,032,000/848,092 + 9,243,000/275,466 + 6,503,000/909,200 + 7,434,000/450,950) /4 = 16.665.

Hence, the total enterprise value of our target company becomes = 16.665 x 555,555 = $9,258,324.

EV = Debt + Equity - Cash.

Hence, the equity of the company becomes = 9258324 + 200000 - 3900000 = $5,558,324.

Hence, the share price = 5,558,324/300000 = $18.528 per share.

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