Suppose you have gathered the following data on 2 large U.S. firms that primaril

Question

Suppose you have gathered the following data on 2 large U.S. firms that primarily own timber: Rayonier and Plum Creek. We are trying to use the market data on Rayonier to estimate the market value of Plum Creek. We have the following data (in $-billions):

Market value equity

Value debt

Cash

Net income

EBITDA

Plum Creek

?

3.3

.1

.19

.41

Rayonier

6.1

1.5

.2

.27

.56

Based on the EBITDA multiple, what is the estimated enterprise value of Plum Creek?

Based on the net income multiple, what is the estimated enterprise value of Plum Creek?

If the actual market cap of Plum Creek was $8 billion, would you recommend buying or selling Plum Creek? Why?

Market value equity

Value debt

Cash

Net income

EBITDA

Plum Creek

?

3.3

.1

.19

.41

Rayonier

6.1

1.5

.2

.27

.56

Explanation / Answer

1. EBITDA multiple :- Value = Market Value of Equity + Market Value Of Debt - Cash EBIDTA   

= Value = 3.30 - 0.10 = 7.805 $ billion .41

2. Net Income Multiple    :- Value = Market Value of Equity + Market Value Of Debt - Cash Net Income   

= Value = 3.30-.10 / .19 = 16.842

3.If The Actual Market Cap is > the estimate enterprise value. = Sell Plum Creek

If The Actual Market Cap is < the estimate enterprise value. = Buy Plum Creek

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