question archive Using the chop shop method, please determine a firm's value for San Francisco, Inc
Using the chop shop method, please determine a firm's value for San Francisco, Inc
Subject:FinancePrice:3.86 Bought14
Using the chop shop method, please determine a firm's value for San Francisco, Inc. San Francisco common stock is trading at a total market price of 4 million. For San Francisco, the accounting data are divided into three business segments as given below in the tables. Data for the firm's three segments are as follows: Business segments Segment's Sales Segment's Assets Segment's ($000) ($000) Earnings before Interest and Taxes (EBIT) Consumer wholesale 1000 750 150 Specialty services 1500 700 250 Retirement centers 2200 800 550 Total 4700 2250 950 Industry data for "pure-play" firms have been computed and are summarized as follows: Firm Value/Sales Firm value/Assets Firm Value/ EBIT Business segments Consumer wholesale 0.7 0.75 12 Specialty services 1.1 0.65 10 Retirement centers 1 0.9 11
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Under chop shop method , firms value is determined based on average of therotical value of firm (engaged in different business segments) which calculated under different capItalisation ratio
San Fransisco, Inc.
Figures in ('$000)
Therotical value under firms value to sales ratio:
| Business Segment |
Capitalisation to sales Ratio(A) |
Segment Sales(B) | Theoretical Value(A*B) |
| Consumer Wholesale | 0.7 | 1,000 | 700 |
| Speciality services | 1.1 | 1,500 | 1,650 |
| Retirement Centers | 1 | 2,200 | 2,200 |
| Total Value | 4,550 |
Theoretical Value under firm's value to assets ratio:
| Business Segments | Capitalisation ratio to assets(A) | Segment asset(B) | Theoretical Value (A*B) |
| Consumer Wholesale | 0.75 | 750 | 562.5 |
| Speciality services | 0.65 | 700 | 455 |
| Retirement Centers | 0.9 | 800 | 720 |
| Total Value | 1,737.5 |
Theoretical value under firm's value to EBIT ratio:
| Business segments | Capitalisation to EBIT ratio (A) | Segment EBIT(B) | Theoretical Value (A*B) |
| Consumer Wholesale | 12 | 150 | 1,800 |
| Speciality services | 10 | 250 | 2,500 |
| Retirement Centers | 11 | 550 | 6,050 |
| Total Value | 10,350 |
Average Theoretical Value=[$4,550,000+$1,737,500+$10,350,000]/3
=$5,545,833
Firms value for Sanfransisco Inc. under Chop Shop method is $5,545,833
