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Youre trying to value a fast-growing company that is forecast to have negative Net Income, EBIT, EBITDA and FFCF for the next 3 years. But the firm currently generates sales and will for the foreseeable future. The firm is expected to be a mature profit-making company in 6 years. Which of the following valuation techniques is reasonable? Note that assets should be interpreted as being the market value of assets, not book assets.

(I) PE multiple valuation. Calculate the firms equity value by multiplying its net income by similar firms average price-to-earnings ratios.

(II) Asset-to-EBITDA multiples valuation. Calculate the firms asset value by multiplying its EBITDA by similar firms average asset-to-EBITDA ratios.

(III) Asset-to-sales multiple. Calculate the firms asset value by multiplying the firms sales by similar firms average asset-to-sales ratios.

(IV) DCF valuation. Calculate the firms asset value by discounting its OFCFs by its WACC after tax over a 2 year horizon with a terminal value based on a perpetuity of OFCFs from time 3 onwards.

(V) DCF valuation. Calculate the firms asset value by discounting its OFCFs by its WACC after tax over a 6 year horizon with a terminal value based on a perpetuity of OFCFs from time 7 onwards.

(VI) DCF valuation with a multiples TV. Calculate the firms asset value by discounting its OFCFs by its WACC after tax over a 6 year horizon with an asset/EBITDA multiples terminal value (TV) in year 6, by multiplying year 6s expected EBITDA by mature firms average asset-to-EBITDA ratios.

Which of the above valuation techniques is reasonable?

Select one:

a.

All of the above.

b.

All except I, II and IV.

c.

All except I and IV.

d.

All except II and IV.

e.

All except I.

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