You have been asked to value Barrista Espresso a chain of
espresso coffee shops that have opened on the east coast of the United States.
You have collected the following
information.The company had earnings before interest and taxes of $10.50
million in the most recent year. However the founders of the company had never
charged themselves a salary which would
have amounted to
$1 million if
based upon comparable companies.The tax rate is 36%The capital expenditures in the most recent year amounted to
$4.5 million while depreciation was only $1 million.Working capital is expected to remain at 10% of revenues.Earnings revenues and net capital expenditures are expected
to grow 30% a year for 5 years and 6% after that forever.There are three comparable companies which are publicly
BetaD/EKdStarbucks:1.749.53%9.00%Au Bon Pain:1.2131.43%8.50%Sbarro:1.120.00%NABarrista Espresso is expected to maintain a debt ratio of
12% and face a cost of debt of 8.75%.a. Estimate the value of Barrista Espresso as a firm. b.
Estimate the value of equity in Barrista Espresso.c. Would your valuation be any different if you were valuing
the company for an initial public offering rather than a private valuation.