Overview

Corporate Valuation

In this guide we use various valuation tools to value a hypothetical firm called Ideko Corporation.

This guide builds on the concepts and priciples introduced from our first guide on Corporate Valuation here, Corporate Valuation Guide 1, with new methods such as:

• Valuing investments through the Adjusted Present Value (APV) method (most often used by practioners when the Debt to Equity ratio is not constant)
• Calculating the Present Value of Tax Shields, to calculate the full unlevered value of a firm
• Calculating the Unlevered Cost of Capital (different to WACC, and used in the APV method as the primary discount rate), and
• Estimating Valuations through Financial Multiples from comparable companies.

Introduction

Ideko Corporation is a privately held designer and manufacturer of speciality sportswear.

In 20X5 the founder decided to sell the business after relinquishing management control several years ago. As a partner of a Private Equity firm (Kleiner Partners!), you are investigating the purchase of the company.

If a deal can be reached, you plan to implement various financial and operational improvements at Ideko over the next 5 years, after which you intend to sell the business.

Initially, as partner of Kleiner Perkins, you believe a deal could be struck to purchase the equity of Ideko for $150 million.