MoneyForNothing.com is a company producing smartphone apps. It finances its operations with D/E ratio of 0.2 and plans to continue doing so forever. The beta of its assets is 1.54 and the beta of its debt is 0.7. The company is now preparing for an IPO. The company’s CFO has prepared the valuation using the WACC method and found that the enterprise value of MoneyForNothing.com is $15 billion. The investment bankers that the CEO is looking to hire believe that the Adjusted Present Value (APV) is a better method to value the firm and that using that method will help arrive at a higher valuation. Are the banker’s right? MoneyForNothing.com is a company producing smartphone apps. It finances its operations with D/E ratio of 0.2 and plans to continue doing so forever. The beta of its assets is 1.54 and the beta of its debt is 0.7. The company is now preparing for an IPO. The company’s CFO has prepared the valuation using the WACC method and found that the enterprise value of MoneyForNothing.com is $15 billion. The investment bankers that the CEO is looking to hire believe that the Adjusted Present Value (APV) is a better method to value the firm and that using that method will help arrive at a higher valuation. Are the banker’s right? No, they are not Yes, they are
Added by Michelle O.
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- APV (Adjusted Present Value) method calculates the enterprise value by first finding the value of the firm's operations assuming all-equity financing, and then adding the present value of the tax shields from debt financing. Show more…
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