Battle for Value: FedEx vs. UPS case
Assume Company X is projecting its EBITDA to grow by 4% per year starting at 80,000 in 2018. The company has no excess cash or marketable securities and does not project to have any excess cash or marketable securities in the future. The company has learned from its investment banker that its EBITDA industry multiple is 14 and this EBITDA multiple is not projected to change in the future.
Using the company’s projected 2021 EBITDA and the EBITDA multiple approach to arrive at a year-end 2021 valuation, what is the company’s projected 2021 enterprise value and total value? You may want to refer to slides 14, 15 and 16 from the March 6 lecture on Valuations using EBITDA as posted on Blackboard Learn.
Answer this financial planning and analysis problem:
A firm has a product with $200,000 in annual sales. Management is considering two different pricing alternatives for this product for next year.
Alternative one is to not change the price of this product next year. The expected result would be 5% sales growth and a 30% gross margin.
Alternative two is to increase the price of this product by 5% next year. The expected result would be 1% sales growth and a 33.3% gross margin.
Based on these expected results, which would you recommend? What is next year’s expected gross margin in dollars in each case?