424.2
2.You are valuing a private firm, ABC co. It has
cash flows of $50 million this year. XYZ Corp., a rival firm in
the same industry as ABC has cash flows of $4.00 per share and a
price of $80.00 per share. What should the total value of ABC co.
be? (2)
Straight-up multiples valuation: ABC has a price-to-cash flow ratio of 20 (=80/4). If the market were to impute the same expected growth to ABC, then its value should also be 20 times its cash flows. That gives us a value of $1 billion (=20*$50million).