FINE332 Module 6 Problem Set Multiples and Transactions

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FINE 332 Corporate Finance I

Module 6 Problem Set Multiples and Transactions, Dividend Discount Module

 

All the data you need is in the template provided to you.

1. JTM Airlines is looking to buy Jaguar Airlines. Your boss, the CFO, wants a quick and dirty valuation of Jaguar. You choose to look at past transactions in the airline industry to get some numbers and put them in an Excel spreadsheet. For Jaguar, you find out the firm's key financial values and put them in the spreadsheet. To remind yourself that they are inputs, you should color them red.

Using EPS, Book Value (BV), Sales, EBITDA, Premium and Synergy over stock price, what should be Jaguar's prices per share?

 

2. Your boss is piling on the work and has asked you to value three more potential acquisitions. They are of Northern, Eastern and Central, fixed base operators serving areas where JTM is looking to expand (the names give away the regions of the country). You don't have cash flow data for these firms as they are privately held, but you talked to the owners and they gave you dividend information for the firms, which you entered into your spreadsheet. You remember back to your corporate finance class that you can use the Dividend Discount Model (DDM) to come up with a quick and dirty valuation.

You know JTM's WACC and will use this as the applicable discount rate. Using the DDM Model, what are the values per share of each of these three firms?

 

Prob. 1

Equity Valuations using Multiples and Transactions

                EPS         BV          Sales      EBITDA Premium             Synergy

Historical Multiples:                                                                                       

- Average            14.00     3.00        2.00        10.00     40.0%    20.0%                    Jaguar shares o/s (M)

- Median              13.50     2.50        2.20        9.00        30.0%    15.0%                    75.00

                                                                                                                               

EPS         Last 4Q Est. 2021              Est. 2022                                                                             

Jaguar EPS           4.84        4.91        5.69                                                                       

Maximum                                                                                                                          

Minimum                                                                                                                           

Book Value                                                                                                                        

Jaguar Book Value                           32.46                                                                                    

Maximum                                                                                                                          

Minimum                                                                                                                           

Sales                                                                                                                     

Jaguar Sales (Last 4Q)                                     3,722                                                                    

Average Sales Multiple                                                                                                                 

Firm Value                                                                                                                         

Debt Value                                         2,094                                                                    

Equity Value                                                                                                                      

Maximum                                                                                                                          

Minimum                                                                                                                           

EBITDA                                                                                                                

Jaguar EBITDA (Last 4Q)                                                                1,017                                                    

Average EBITDA Multiple                                                                                                                            

Firm Value                                                                                                                         

Debt Value                                                         2,094                                                    

Equity Value                                                       8,076                                                    

Maximum                                                                                                                          

Minimum                                                                                                                           

Premium                                                                                                                            

Pre-Announcement Stock Price                                                                                71.00                                    

Maximum                                                                                                                          

Minimum                                                                                                                           

Synergy                                                                                                                               

Pre-Announcement Stock Price                                                                                                71.00                    

Maximum                                                                                                                          

Minimum                                                                                                                           

Prob. 2

2020 Dividends

                Dividends            Growth/yr.

Northern             3.66        3.0%

Eastern 2.25        4.4%

Central 1.15        3.9%

                               

Dividend Stream                             

                2021       2022       TV

Northern                                            

Eastern                                

Central                                

                                               

DDM Value of each Firm                                              

                $/share                               

Northern                                            

Eastern                                

Central                                

JTM WACC          7.0%                     

v. JAN '22

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