Equity Valuation

Correct Answer: Calculate the estimated enterprise value of XYZ Corp. by multiplying its EBITDA by the industry median EV/EBITDA multiple.

The most appropriate method to estimate the value of XYZ Corp. for the potential acquisition is to calculate the estimated enterprise value of XYZ Corp. by multiplying its EBITDA by the industry median EV/EBITDA multiple. Here's why: - EBITDA is a commonly used metric to evaluate a company's operating performance and is often used in valuation multiples. - The industry median EV/EBITDA multiple provides a benchmark for valuing companies in the same industry, as it reflects the market's perception of the value of similar businesses. - By multiplying XYZ's EBITDA by the industry median EV/EBITDA multiple, we can estimate the enterprise value of XYZ Corp., which includes both equity and debt. The other options are not appropriate because: - Dividing MNO's market capitalization by the industry median EV/EBITDA multiple and adding XYZ's EBITDA does not provide a meaningful estimate of XYZ's equity value. - Using MNO's market capitalization as a proxy for XYZ Corp.'s value is not accurate, as the two companies may have different financial performances, growth prospects, and capital structures, despite operating in the same industry.

Correct Answer: $106.38

The correct answer is $106.38. To calculate the intrinsic value using a two-stage discounted dividend model and CAPM: First, calculate the expected dividends for the next 3 years using the 7% growth rate: Year 1: $4.00 * 1.07 = $4.28 Year 2: $4.28 * 1.07 = $4.58 Year 3: $4.58 * 1.07 = $4.90 Then, calculate the terminal value at the end of year 3 using the 4% perpetual growth rate and the required rate of return from CAPM: Required return = Risk-free rate + Beta * Market risk premium = 2% + 1.1 * 5% = 7.5% Terminal value = Dividend in year 4 / (Required return - Perpetual growth rate) = ($4.90 * 1.04) / (0.075 - 0.04) = $145.60 Finally, discount the dividends and terminal value back to the present using the required return: Intrinsic value = ($4.28 / 1.075) + ($4.58 / 1.075^2) + ($4.90 / 1.075^3) + ($145.60 / 1.075^3) = $3.98 + $3.96 + $3.94 + $94.50 = $106.38 The other answers are incorrect because they either use the wrong model, wrong growth rates, or wrong time periods.

Correct Answer: Multiply NOP's EBITDA by the industry average EV/EBITDA multiple to estimate its enterprise value.

The most appropriate way to estimate the value of NOP Inc. for the potential acquisition is to multiply NOP's EBITDA by the industry average EV/EBITDA multiple. This method directly uses the given information about NOP's financial performance and the industry benchmark to arrive at a reasonable valuation. The other two options are incorrect because they either use irrelevant information or apply the valuation metrics incorrectly: - Calculating KLM's market capitalization is not directly relevant to estimating NOP's value, as the two companies are separate entities with different financial characteristics. - Dividing KLM's stock price by NOP's EBITDA does not provide a meaningful valuation metric and fails to utilize the industry average EV/EBITDA multiple, which is a more appropriate benchmark for valuing a company in the same industry.