Question 18.2: Choosing an Appropriate Valuation Approach SITUATION: You ha...

Fundamentals of Corporate Finance

Choosing an Appropriate Valuation Approach
SITUATION: You have decided to make an offer for the recreational vehicle manufacturing business that you evaluated in Learning by Doing Applications 18.1, 18.2, and 18.3. Your analysis yielded the following enterprise value estimates:

\begin{matrix} Liquidation \ value &&& \$ 8.45 \ million \\ Value \ from \ multiples \ analysis \\ P/E \ multiple \ &&& \$18.35 \ million \\ Enterprise/EBITDA \ multiple &&& \$24.70 \ million \\ FCFF \ value &&& \$24.58 \ million \end{matrix}

The seller of the company is asking for $18 million. Is this price reasonable?

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