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would your valuation be any different if you were valuing the company for an initial 546341

You have been asked to value Barrista Espresso, a chain of espresso coffee shops that have opened on the east coast of the United States. You have collected the following information.

  • The company had earnings before interest and taxes of $10.50 million in the most recent year. However, the founders of the company had never charged themselves a salary, which would have amounted to $1 million, if based upon comparable companies.
  • The tax rate is 36%
  • The capital expenditures in the most recent year amounted to $4.5 million, while depreciation was only $1 million.
  • Working capital is expected to remain at 10% of revenues.
  • Earnings, revenues and net capital expenditures are expected to grow 30% a year for 5 years, and 6% after that forever.
  • There are three comparable companies, which are publicly traded.

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D/E

kd

Starbucks:

1.74

9.53%

9.00%

Au Bon Pain:

1.21

31.43%

8.50%

Sbarro:

1.12

0.00%

NA

Barrista Espresso is expected to maintain a debt ratio of 12% and face a cost of debt of 8.75%.

a. Estimate the value of Barrista Espresso as a firm.

b. Estimate the value of equity in Barrista Espresso.

c. Would your valuation be any different if you were valuing the company for an initial public offering rather than a private valuation.

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