As we know, there are four main valuation methods. For this case study we are going to use Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) for the Target Company. The following are the case study assumptions:

Models Use:

Perpetuity (P): Use for initial and terminal value.

Gordon Growth (GG): Use for initial and terminal value.

Multiple Approach (M): Calculate the value using a 22x, 44x, and 55x earnings.

Discounted Cash Flow (DCF)

Calculate the Terminal Value (TV)

Assumptions: Small Tech Start-Up in Software Consumer Products Space being bought by Private Equity/Venture Capital Firm.

Also, show the calculations for valuations utilizing the above methods:

Free Cash Flow (FCF): EBITDA (t=0) = $20 million

FCF Growth Rate: g going in = 15%, g terminal = 10%

Expected Rate of Return E(r)r = 30% E(r) (i) terminal = 40%

Proforma Cash Flow Growth Rates:

g (t+1) = 40%, g (t+2) = 28%, g (t+3) = 25%, g (t+4) = 15%

Target Company Acquisition Price = $200.0 million

Three (3) Year Holding Period

Using Perpetuity/Gordon Growth/Multiple Approach: What is the intrinsic value of the target company?

Using DCF: What is PV, NPV, IRR, Break-Even Period?

Would you Accept or Reject the Project?

If the NPV was negative what four (4) iterations would you go through? If you still could not get the project NPV positive, what would be your last scenario be? And what would NNPV need to be?