Sharon wants to value the equity of Moon Corporation (MC), a private company, us

Question

Sharon wants to value the equity of Moon Corporation (MC), a private company, using the GPCM. The stock is currently trading at $45 per share She gathers the following information regarding comparable public companies in the same industry as MC: Average MVIC-EBITDA multiple 7.2 An upward adjustment of 30% to the average comparable public company MVIC-EBITDA ratio is required to reflect the relative risk and growth characteristics of MC. Based on past acquisitions of public companies in the industry, a 20% premium for control is considered appropriate. . Sharon also obtains the following information regarding MC: Normalized EBITDA-$22.50 million Market value of debt- $114 million Normalized D/E ratio-0.6 Given that the company has three million common shares outstanding, the stock is most likely Select one: a. Undervalued. b. Fairly valued O c. Overvalued

Explanation / Answer

MVIC=EBITDA*MVIC-EBITDA multiple*(1+risk and growth premium)*(1+control premium)
=22.5*7.2*1.3*1.2=252.72 million
MVE=252.72-114=138.72 million
Intrinsic value=138.72/3=46.24

As it is trading at 45, that is less than intrinsic value, the stock is most liekly undervalued

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