The free cash flow (FCF) valuation model, the discounted cash flow model, and th

Question

The free cash flow (FCF) valuation model, the discounted cash flow model, and the corporate valuation model are the most widely used valuation techniques. Often these valuations are accompanied by market multiple analysis, which is based on the fundamental concept that similar assets should have similar values. Fuzzy Button Clothing Company is a privately owned firm with few investors. Investors' forecast of next year's earnings per share (EPS) is $3.00. The average price-to-earnings (P/E) ratio for companies similar to Fuzzy Button in the S&P 500 is 12. Fuzzy Button's common stock has an estimated intrinsic value of per share. The market multiple analysis process is also used to calculate the value of a company, which can then be spread across the number of common shares outstanding to estimate a firm's per-share intrinsic value. Suppose you have the following information for Perfect Pigeon Aviation Company: Perfect Pigeon Aviation Company EBITDA Total value of equity Total firm value Year 1 $7,650 $76,500 $99,450 Year 2 $9,150 $82,500 $132,000 In Year 2, Perfect Pigeon has an entity multiple of

Explanation / Answer

entity multiple or EBITDA multiple = Enterprise Value/EBITDA = $ 132000/$ 9150 = 14.426

So, the approximated EBITDA multiple = 14

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