MarineCo manufactures, markets, and distributes recreational motor boats. Using

Question

MarineCo manufactures, markets, and distributes recreational motor boats. Using discounted free cash flow, you value the company's operations at $2,500 million. The company has a 20 percent stake in a nonconsolidated subsidary. The subsidary is valued at $500 million. The investment is recorded on MarineCo's balance sheet as an equity investment of $50 million. MarineCo is looking to increase its ownership. The company's marginal tax rate is 30 percent. Based on this information, what is MarineCo's enterprise value? If new management announced its plan to sell the company's stake in the subsidiary at its current value, how would that change your valuation?

Explanation / Answer

EV = market value of common and preferred share + market value of debt - cash and shor term investments

= 500 - 50 = 250

if management sell the company's stake then market value of common and preferred share decreases as stake is sold so Ev decreases

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