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Part B. (18.5 points) This question requires your detailed calculation. Please write the equations and the additional assumption(s) if there is any. You should also email me your excel file for this question. Your answer to this question should not be more than 6 pages. In this question, you are hired by Palumbo & Entrup Partners (PE) to decide whether it is worthwhile to purchase a private firm, Young LLC. Young LLC produces a type of communicating watch with its own apps. The following table shows the financial information for Young LLC. 2020 2020 Income Statement and Balance Sheet Data for Young LLC. Year 2020 Year Income Statement ($ 000) Balance Sheet (8 000) 1 Sales 20,000 Assets 2 Cost of Goods Sold 1 Cash and Equivalents 3 Raw Materials (3,000) 2 Accounts Receivable 4 Direct Labor Costs (2,400) 3 Inventories 5 Gross Profit 14,600 4 Total Current Assets 6 Sales and Marketing (2,600) 5 Property, Plant, and Equipment 7 Administrative (3,800) 6 Goodwill 8 EBITDA 8,200 7 Total Assets 9 Depreciation (1,000) Liabilities and Stockholder's Equity 10 EBIT 7,200 8 Accounts Payable 11 Interest Expense (net) (300) 9 Debt 12 Pre-tax Income 6,900 10 Total Liabilities 13 Income Tax (1,380) 11 Stockholder's Equity 14 Net Income 5,520 12 Total Liabilities and Equity 11,000 4,000 5,000 20,000 10,000 30,000 1,255 6,000 7,255 22,745 30,000 Young LLC has excess cash of $10 million. Based on its business, the comparable companies are Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Apple Inc. (AAPL). The owner of Young is willing to accept a price based on the average of equity prices estimated using PE, and Enterprise Value/EBITDA ratios for each of the comparable firm. Based on your analysis, what acquisition price will you propose to pay for the owner (the equity holder)? (Please use the ratios in the following table.) Valuation ratios of comparable firms Multiple AAPL MSFT GOOGL P/E 23.4 30.1 27.2 EV/EBITDA 15.7 19.3 15.6 Part B. (18.5 points) This question requires your detailed calculation. Please write the equations and the additional assumption(s) if there is any. You should also email me your excel file for this question. Your answer to this question should not be more than 6 pages. In this question, you are hired by Palumbo & Entrup Partners (PE) to decide whether it is worthwhile to purchase a private firm, Young LLC. Young LLC produces a type of communicating watch with its own apps. The following table shows the financial information for Young LLC. 2020 2020 Income Statement and Balance Sheet Data for Young LLC. Year 2020 Year Income Statement ($ 000) Balance Sheet (8 000) 1 Sales 20,000 Assets 2 Cost of Goods Sold 1 Cash and Equivalents 3 Raw Materials (3,000) 2 Accounts Receivable 4 Direct Labor Costs (2,400) 3 Inventories 5 Gross Profit 14,600 4 Total Current Assets 6 Sales and Marketing (2,600) 5 Property, Plant, and Equipment 7 Administrative (3,800) 6 Goodwill 8 EBITDA 8,200 7 Total Assets 9 Depreciation (1,000) Liabilities and Stockholder's Equity 10 EBIT 7,200 8 Accounts Payable 11 Interest Expense (net) (300) 9 Debt 12 Pre-tax Income 6,900 10 Total Liabilities 13 Income Tax (1,380) 11 Stockholder's Equity 14 Net Income 5,520 12 Total Liabilities and Equity 11,000 4,000 5,000 20,000 10,000 30,000 1,255 6,000 7,255 22,745 30,000 Young LLC has excess cash of $10 million. Based on its business, the comparable companies are Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Apple Inc. (AAPL). The owner of Young is willing to accept a price based on the average of equity prices estimated using PE, and Enterprise Value/EBITDA ratios for each of the comparable firm. Based on your analysis, what acquisition price will you propose to pay for the owner (the equity holder)? (Please use the ratios in the following table.) Valuation ratios of comparable firms Multiple AAPL MSFT GOOGL P/E 23.4 30.1 27.2 EV/EBITDA 15.7 19.3 15.6

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