Question

Using the information in the table, answer the questions: Industry average EV to EBITDA multiple 6.5...

Using the information in the table, answer the questions:

Industry average EV to EBITDA multiple

6.5 x

Company ABC data:

EBITDA (normalized)

€ 40m

Market value of debt

€4.8m

1. What is the ABC company value? (use the market-based approach) and What is the ABC company’s equity value?

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Answer #1

In this question we have

EBIDTA =€40M

industry average ev/ebidta multiple =6.5x

Market value of debt =€4.8m

Therefore enterprise value = EV/EBIDTA multiple *EBIDTA

=6.5*€40m

=€260m

ABC equity value = enterprise value - market value of debt

=€260m-€4.8m

=€255.2m

Note :-To calculate equity value from enterprise value, subtract debt and debt equivalents, non-controlling interest and preferred stock, and add cash and cash equivalents. But in question only debt is given so done according to that.

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