Solved by a verified expert :Week 5 – Questions 1. Compare and contrast the goals of a public company from those of a private company. 2. Explain why it is important for a company to grow.3. List six strategies (organic or external) for increasing growth:4. Define and give the formula for each of the following terms: Earnings per Share – Stock Multiple or P/E Ratio – Beta Coefficient – PEG Ratio – EBITDA Valuation Ratio – 5. Explain some of the benefits for going public. Week 5: Stock Valuation 6. Compute the likely range for the indicated data after the IPO of this company: Company EBITDA: $5,00,00,000 Net Earnings: $2,50,00,000 Number of Shares: 87,00,000 Low High Total Market Value Range: Low High Estimated Share Price: Earnings per Share: Low High Estimated P/E Ratio Range: 7. Compute the total market value, enterprise value and EV/EBITDA ratio of this company: Market price of common stock: $38.00 Number of common shares: 85,00,000 Total market value of the company: Total cash of the company: $1,62,50,000 Total debt of the company: $12,34,00,000 Enterprise Value of the company: Company EBITDA: $3,82,50,000 Enterprise Value/EBITDA ratio: Week 5: Dow-Jones Industrial Average and Other Stock Indices All of the following information can be easily found by doing a Google search. 8. List the names of the 30 major companies (and their stock symbols) which currently comprise the Dow-Jones Industrial Average: 9. List a website which lists all of the stocks contained in the Standard & Poors 500 Index: 10. List a website which lists all of the stocks contained in the NASDAQ 100 Index: Week 5: Capital Asset Pricing Model 11. State the Capital Asset Pricing Model formula 12. Compute the Maket Risk Premium for the following five 15 year periods of the stock market Average Annual Returns for 15yr Period S&P 500 Return Treasury Bills Market Risk Premium 1940-1954 13.88% 0.74% 1955-1969 10.14% 3.36% 1970-1984 8.75% 7.85% 1985-1999 18.94% 5.55% 2000-2014 4.24% 1.85% 13. Use the CAPM formula to compute the Expected Return for the following stocks, using the data from the appropriate time period shown in Problem 12 (above). Stock Period Beta Expected Return A 1940-1954 0.75 B 1940-1954 1.50 C 1955-1969 0.75 D 1955-1969 1.50 E 1970-1984 0.75 F 1970-1984 1.50 G 1985-1999 0.75 H 1985-1999 1.50 I 2000-2014 0.75 J 2000-2014 1.50 Week 5: Brownstone/Fillis Bistro (Pg 132) The Fillis Bistro, operated by Brownstone Restaurants, Inc, is a fine dining restaurant that caters to those with discerning taste. The executive chef was trained in France and only uses the finest organic ingredients. He even grows his own herbs in a garden behind the restaurant so that he can serve the freshest food possible. Restaurant sales for the Fillis Bistro have leveled off over the last couple of years and Brownstone is trying to determine the best methof for expanding the business. Management has discussed several ideas for expansion, including increasing off-premise catering sales, opening a second location and scrutinizing costs to cut back expense, but they cannot agree on anything. Brownstone Restaurants, Inc. owns and operates over 20 restaurants in the East coast of the United States. These restaurants includeFillis Bistro, 6 Mexican restaurants and 8 Greek restaurants. All of the operations are operating at optimal levels and are reaching budgeted financial projections. List two possible organic growth strategies and two external growth strategies for Brownstone Restaurants, Inc. to grow its Fillis Bistro unit. Strategy Advantage DisadvantagePlease make a recommendation to Brownstone: Week 5: Tranquil Hotels (Pg 132-133) Tranquil Hotels Co. specializes in developing resorts and spas for busy people who are always on the go and need to relax. Each location is specially chosen for the beauty of its setting, the ambiance of the city and the ease of arrival for its guests. Tranquil Hotels are located all over the world in countries like France, Brazil, Greece, Italy and many other locations. The company’s mission is to “provide our guests with the most relaxing experience that they would find at any place in the world.” Tranquil Hotels Co. has hired a consultant to analyze its business and determine if the companyshould remain privately held or go public. The company has experiences an influx of business from U.S. travelers over the last couple of years. U.S. employees tend to work very hard, so when they have time off to relax, they want ot get away from everything and Tranquil Hotels is the perfect place. Management believes there is a big market for their resorts and the best option for expansion is through an IPO. Last year the company’s cash flow (EBITDA) reached nearly $75 million. Overall, the company has been enjoying cash flow increases of 5% per year. 1. What is the likely range of total value you would estimate for Tranquil as a private company? Show your calcuations.2. Describe the IPO process which Tranquil would need to follow if they decide to go public.3. If you were the owner would you go public? Why or why not? 4. If the owner is considering getting out of the business should he/she take the company public? Why or why not?
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