Internal Lateral Move - Need Help with Valuation Case Study
I'm making a lateral move within my company from operational finance/accounting to a FP&A role. As part of my application I have to do a case study. This is my first true "finance" role - take it easy. Case study is as follows:
Given Selling company's P&L (3 years actual, 4 years forecast) - closing date on end of year 3 - and a PPT of investment opportunities/risks; value this company and make an investment recommendation.
What's the right way to go about this? I'm in the entertainment business, not a bank so I don't think they're looking for something SUPER technical. My first thought obviously is to do a DCF using provided EBITDA to get enterprise value of seller. But three questions
What discount rate do I use? This is supposed to be a 100% cash purchase but I'm not given any balance sheet info for purchaser or seller to use WACC. It was suggested to me by a friend that it might be okay to use and assume a "required return rate" that the purchaser might use for all projects/acquisitions. Does this make sense?
Once I complete DCF and get enterprise value for all 3 cases (mgmt, base, downside) - this would give me the range of acceptable purchase price right?
Lastly - is there value in calculating the IRR of purchase price (as a negative) and future cash flows? At first I thought the IRR would equal the discount rate used in DCF but it doesn't seem so in my model - what's the relationship and can I use IRR to compare two mutually exclusive investments? I want to suggest that "we should acquire this company unless there are other options with better IRR, etc"
I'm just talking from a strictly financial perspective here - I know there are other factors I should consider like synergies, market ,etc etc but just wanted to get thoughts on the $$ part. Thanks!
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