Mini Case: Valuation of Common Stock. What are we really worth?
1. What are the advantages and disadvantages of going public? Do you agree with Dan’s concerns or do you concur with the other members of the Short family regarding the issuance of an IPO? Explain why.
2. Comment on Lisa’s preference of the Corporate Value Model. Based on her approach, what would Citrus Glow’s selling price per share be if they were to issue 5 million shares?
3. How does Lisa’s price estimate compare with Dan’s price estimate based on the price-ratio models? What are the pros and cons of Dan’s preferred approach?
4. How far off would Joe’s price estimate if he were to use a 3-stage approach with growth assumptions of 30% for the first 3 years, followed by 20% for the next two years, and a long-term growth assumption of 6% thereafter. Assume that the firm pays a dividend of $1.50 per share at the end of the first year.
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.
6. Write a brief summary.
Answer will be sent by email as attachment.
