Acquirer Incorporated's Management Believes That the Most Reliable Way to Value

question 83

Essay

Acquirer Incorporated's management believes that the most reliable way to value a potential target firm is by averaging multiple valuation methods, since all methods have their shortcomings. Consequently, Acquirer's Chief Financial Officer estimates that the value of Target Inc. could range, before an acquisition premium is added, from a high of $650 million using discounted cash flow analysis to a low of $500 million using the comparable companies' relative valuation method. A valuation based on a recent comparable transaction is $672 million. The CFO anticipates that Target Inc.'s management and shareholders would be willing to sell for a 20 percent acquisition premium, based on the premium paid for the recent comparable transaction. The CEO asks the CFO to provide a single estimate of the value of Target Inc. based on the three estimates. In calculating a weighted average of the three estimates, she gives a value of .5 to the recent transactions method, 3 to the DCF estimate, and .2 to the comparable companies' estimate. What it weighted average estimate she gives to the CEO? Show your work.

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Definitions:

Health-care Providers

Professionals and facilities that offer health-related services to individuals, including medical treatment, diagnosis, and preventive care.

Human Transaction

Interactions between individuals that involve exchange or communication, often considered in social, psychological, and economic contexts.

Orlando's Work

Refers to Ida Jean Orlando's nursing theory, which highlights the dynamic nurse-patient relationship where the nurse uses their perception, thought, and feeling to meet the patient's immediate need for help.

Nurse-patient Relationship

The professional bond and interaction between a nurse and a patient, foundational to patient care and recovery.