Sunny farms is a company where the CEO owns more than 80% of the company. The...
| Sunny farms is a company where the CEO owns more than 80% of the company. The EBIT in the current year is $200 mn. The CEO spent $4 mn | |||
| on personal travel but charged sunny f.. for the travel. The CEO's salary is $150,000. The CEO of a equal sized firm earns a salary of $500,000 per year | |||
| What should be the EBIT of Sunny farms. for the purpose of valuation? | |||
Homework Answers
EBIT should not include any personal expense of management.
Since EBIT of sunny farms is calculated by adding 4mn spent by CEO.
However the EBIT should be deducted for the extra salty paid by other equal firm where the difference is $350000 i.e., 0.35 mn
So the EBIT for purpose of valuation is
200 + 4 - 0.35 = 203.65 mn.
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