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.

c. Overvalued.

Explanation / Answer

EV/EBITDA = 7.2 * 1.30 * 1.20 = 11.232

Enterprise value = 11.232 * 22.50 = 252.72

market value of equity = 252.72 - 114 = 138.72 million

price per share = 138.72/3 = 46.24

since it is trading at 45, it is undervalued

a. undervalued

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