You decide to value a steady‐state company using probability‐weighted scenario analysis.In scenario 1,NOPLAT is expected to grow at 8 percent,and ROIC equals 20 percent.In scenario 2,NOPLAT is expected to grow at 2 percent,and ROIC equals 10 percent.Next year's NOPLAT is expected to equal $100 million,and the weighted average cost of capital is 12 percent.Using the key value driver formula,what is the enterprise value in each scenario? If each scenario is equally likely,what is the enterprise value for the company?
A)Value in scenario 1 is $1,500m;value in scenario 2 is $800m;weighted value = $1,150m.
B)Value in scenario 1 is $800m;value in scenario 2 is $1,500m;weighted value = $1,150m.
C)Value in scenario 1 is $800m;value in scenario 2 is $1,500m;weighted value = $2,300m.
D)Value in scenario 1 is $1,500m;value in scenario 2 is $800m;weighted value = $2,300m.

Question

Quizplus · Accepted Answer

Value in scenario 1 = 100 * (1 – 8%/20%)/(12% – 8%) = 1,500
Value in scenario 2 = 100 * (1 – 2%/10%)/(12% – 2%) = 800
Since each scenario is equally likely (50% probability for each), value is (1,500 * 0.5) + (800 * 0.5) = 1,150

You Decide to Value a Steady‐state Company Using Probability‐weighted Scenario