Choosing an Appropriate Valuation Approach SITUATION: You have decided to make an offer for the recreational vehicle manu facturing business that you evaluated in Learning by Doing Applications 18.1 , 18.2 , and 18.3 . Your analysis yielded the following enterprise value estimates: [latex]\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}[/latex] The seller of the company is asking for $18 million. Is this price reasonable?

DECISION: The price appears to be reasonable. It is almost $10 million greater than the liquidation value, but this value does not include the going-concern value associated with the business. The other three estimates, which all reflect the company’s going-con cern value, suggest that the fair market value of the business is greater than the seller’s asking price.

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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