1. Value Spiegel using a discounted cash flow model.
You can assume, for purposes of these valuations, that
(a) the working capital, as a percentage of revenue, will be 20% of revenues
in future time periods.
(b) Spiegel intends to get to and maintain a market value debt ratio
(D/(D+E)) of 35% from the beginning.
2. Given the information on comparable firms, value Spiegel using the relative
valuation models - PE ratios, PBV ratio and P/Sales Ratios, using both the
Îsubjective adjustmentÌ approach (get the average multiple,
and adjust for differences in growth, risk ...) and a regression approach
(run a regression of PE, PBV and PS ratios against the variables that you
have information on in Exhibit 5.
3. If you get different answers using the two approaches - discounted cash
flow and relative valuation - explain the differences. Which one would you
choose to use
- as the investment banker taking the company public?
- as a potential investor in the stock?
4. Does the fact that the shares to be offered are nonvoting make a difference
in the value you would attach to these shares? If so, why and how much?
5. Given your estimates for value from the above models, at what price would
you take this company public?
P.S. Do not use ex-post information. You do not, for instance, know that
there is going to be a market crash two weeks after the day of your decision
(October 5, 1987).