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    Corporate Valuation and Investment Question

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    Assume you are CFO at a diversified company, and your Board has directed you to sell one of your business units.

    How do you determine your asking price? Discuss at least two or three approaches. NOTE: the business unit is not publicly traded. (By the way, apparently most business executives do not know the value of their private enterprise or division.)

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    Solution Preview

    The major difference between the valuation of private and public firms is that in the case of public firms one can use the valuation by stock market as a benchmark. This is not applicable with respect to the private firms. They are mostly valued on book values.

    Let us discuss certain valuation techniques:

    Free cash flow or WACC approach gives the firm's value of assets or stock.
    The use of the DCF techniques can be extended to value a business firm. In the valuation of a firm a financial analyst usually assumes a constant debt ratio. The firm can be ...

    Solution Summary

    This solution explains how to determine an asking price for a diversified company.