You are an MBA seeking a position with JP Morgan and you have reached the final round of the grueling interview process. The head of the M&A division of JP Morgan, Jane Doe, has been very impressed by your credentials and challenges you to value a company, Anonymous, Inc., that is ready to go for an IPO (an Initial Public Offering). You are given two hours to conduct the analysis and provided access to all available information required to conduct your analysis. The forecasted earnings of Anonymous, Inc. (or EBIT) are $3,000,000 per year for the foreseeable future. You spend thirty minutes on due diligence of all comparable firms in the same industry and estimate that the beta asset in the business of Anonymous, Inc. is 2.50. The risk free rate is 2.00% and the expected market risk premium (the premium that the market is expected to earn over the risk free rate) is 4.00%. The pro forma balance sheet of Anonymous, Inc. shows that it has $5,000,000 of debt that it plans to maintain for the foreseeable future and the interest on the debt is 5%. The corporate tax rate is 35%, interest payments on debt are tax deductible and it is reasonable to assume that the riskiness of the tax shield is the same as the debt. You also estimate that the chances that Anonymous, Inc. will go into bankruptcy in the future are negligible. Anonymous, Inc., has 1,000,000 shares among all its owners.
1) Given that the above information takes you more than 100 minutes to gather, you choose to use the Adjusted Present Value (APV) method to value the company and your estimate of the value is...
2) the beta equity of Anonymous, Inc. is...
3) the value of the equity of Anonymous, Inc. using the Equity valuation method will be...