The CEO of a startup company thinks the exit will be an IPO ten years from now, valued at 20x their tenth-year earnings,
Posted: Mon May 02, 2022 9:38 am
The CEO of a startup company thinks the exit will be an IPO ten
years from now, valued at 20x their tenth-year earnings, which are
forecasted to be $50mm; when you ask him why 20x, he says it's
because that equals $1b. The CFO thinks the exit is more likely to
be a sale of the company five years from now to O’Neill, a sporting
goods company which is run by SJSU graduates, for about $500mm,
which is what O’Neill recently paid to purchase a maker of
solar-heated wetsuits; however, that company had $250mm in sales at
the time O'Neill bought it. Additionally, using a 20% discount
rate, calculate the differences in current valuation that their two
different strategies would result in (Using DCF
method and Perpetual growth method
to calculate)
years from now, valued at 20x their tenth-year earnings, which are
forecasted to be $50mm; when you ask him why 20x, he says it's
because that equals $1b. The CFO thinks the exit is more likely to
be a sale of the company five years from now to O’Neill, a sporting
goods company which is run by SJSU graduates, for about $500mm,
which is what O’Neill recently paid to purchase a maker of
solar-heated wetsuits; however, that company had $250mm in sales at
the time O'Neill bought it. Additionally, using a 20% discount
rate, calculate the differences in current valuation that their two
different strategies would result in (Using DCF
method and Perpetual growth method
to calculate)