Final answer:
To calculate Interco's total firm value using the smallest firm value-to-sales multiple estimate for each division, multiply each division's sales by the respective firm value-to-sales ratio and add up the firm values of all divisions.
Step-by-step explanation:
To calculate Interco's total firm value using the smallest firm value-to-sales multiple estimate for each division, you will need to use the given firm value-to-sales ratio for each division and multiply it by the respective division's sales. Then, add up the firm values of all divisions. Here are the steps:
- Calculate the firm value for each division by multiplying the division's sales value with the given firm value-to-sales ratio.
- Add up the firm values of all divisions to get the total firm value.
For example, if the firm value-to-sales multiple estimates for the divisions are 1.2, 0.8, and 1.1, and their respective sales are $100 million, $80 million, and $120 million, the calculations would be:
- Division 1 firm value = 1.2 * $100 million = $120 million
- Division 2 firm value = 0.8 * $80 million = $64 million
- Division 3 firm value = 1.1 * $120 million = $132 million
- Total firm value = $120 million + $64 million + $132 million = $316 million
Therefore, the correct answer would be B. $310 million.