What Are We Really Worth Case Study

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| CASE 12: What are we really worth? | FIN 530: FINANCIAL MANAGEMENT | | Herzog, RichardSiepmann, KristinaRauls, PascalThiel, Philipp | | 13.11.2013 | SUMMARY After 20 years of success and growing, Matt, the owner of Citrus Glow, had to make a decision whether to gain capital by going public or not. He knew that the company would need more capital if the company should further grow and expand. To make the right decision he asked his children for advice since they are all MBA graduates. Lisa and Joe strongly supported their dad’s idea to issue shares whereas Dan thought outsourcing would be the better alternative. Lisa and Joe brought the argument that this is the right way to stay competitive when competitors offer substitutes…show more content…
| Company A | Company B | Company C | Market Average | Price/Earnings | 23.6 | 24.6 | 22.8 | 23.67 | Price/Book | 7.7 | 12.1 | 4.2 | 8.0 | Price/Sales | 2.9 | 2.8 | 2.9 | 2.87 | Price/Cash Flow | 13 | 16.7 | 14.7 | 14.8 | In the next step we use the market average to compute the value of the firm in 2005. Afterwards we discount it and divide it by the numbers of share to receive the stock price according to each of the four…show more content…
This estimated price is pretty close to Dan´s estimated prices for the IPO. However Lisa´s estimated price of $18.36 is twice as small as Joe´s price. (5) Based on all three estimates and on the valuation figures for the three competitors how much per share do you think that Citrus Glow is really worth? Explain your rationale. Consequently we should take the average of all three models, because every model has it´s pros and cons against the other and we can´t decide which model calculates the right price. Because for the DDM we have to estimate the Dividends, because a non-publicly traded company does not give out dividends. The price-ratio model needs to compare the ratios of each company to similar companies within the industry. This could be tricky if Citrus Glow has the biggest market shares. The Corporate Value Model, also known as Free Cash Flow model also has it´s limitation regarding to the spending today and not in the past. Lisa´s price: $18.36 Joe´s price: $ 44.98 Dan´s average price: $ 47.12 Average of al 3 models: $36.78 Recent Price of Company A:

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