Answer 2c

Using the P/E ratio as a multiple, we have:

2014 EBIAT (E)

- 2595 Mn

Then using the target P/E ratio as 39.1, we have Future value = 2595*39.1 =
101465 Mn USD
Discounting this to 2011, current valuation using a WACC of 11.1% = 74.022 Bn
USD.
On the other hand using the mean P/E ratio of 34, we get a value of 64.3 Bn USD
This highlights the challenge in using multiples for the valuation of Facebook. The
primary problem lies in determining the appropriate ratio to use. Particularly, since
data for a directly comparable firm is not given, it is difficult to calculate an adjusted
P/E ratio to use.
Also, the scatter of the P/E ratios is pretty high with a range of 101. The closest
organization that can be identified for Facebook is Linkedin, which has a P/E of 96.6,
significantly higher than the mean.
Since we do not have data on the capital structure of the comparables, we can look
at using the EV/ Sales ratio as a multiple. Using the mean as a multiple, this yields a
value of 31.98 Bn as EV net of debt in 2014. That is a discounted EV of 23.3 Bn in
2011.
It is due to these reasons that the DCF is a better valuation approach to determine
the value of FB.