Valuation of the Firm (By Aswath Damodaran, 3rd edtion) Value per Share Chapter
ID: 2767899 • Letter: V
Question
Valuation of the Firm (By Aswath Damodaran, 3rd edtion) Value per Share Chapter 16 2) Genius Media is a high growth technology firm. The value of its Operating Assets has been estimated at $ 530 million. Genius Media has a cash balance of $ 80 million. It also owns 10% of an entertainment software firm. This 10% holding is recorded at its book value of $ 40 million and the average price to book ratio of entertainment software firms is 2.5. Finally, a competitor has sued Genius Media, claiming patent infringement. There is a 25% probability that Genius Media will lose the lawsuit, in which case it will have to pay out $ 100 million in damages. Estimate the value of equity in the firm today. Valuation of the Firm (By Aswath Damodaran, 3rd edtion) Value per Share Chapter 16 2) Genius Media is a high growth technology firm. The value of its Operating Assets has been estimated at $ 530 million. Genius Media has a cash balance of $ 80 million. It also owns 10% of an entertainment software firm. This 10% holding is recorded at its book value of $ 40 million and the average price to book ratio of entertainment software firms is 2.5. Finally, a competitor has sued Genius Media, claiming patent infringement. There is a 25% probability that Genius Media will lose the lawsuit, in which case it will have to pay out $ 100 million in damages. Estimate the value of equity in the firm today.Explanation / Answer
Operating Assets = $530
Less Cash = $80
Less: Debt = 2.5 X $40 $100
Value of equity = $350
Law suit is the contingent liability
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