Question

Edelman Engines has $18 billion in total assets of which cash and equivalents total $110 million....

Edelman Engines has $18 billion in total assets of which cash and equivalents total $110 million. Its balance sheet shows $1.8 billion in current liabilities of which the notes payable balance totals $1.1 billion. The firm also has $9 billion in long-term debt and $7.2 billion in common equity. It has 400 million shares of common stock outstanding, and its stock price is $28 per share. The firm's EBITDA totals $1.792 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places. M/B: x EV/EBITDA:

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Answer #1

Market value of Common equity = 400 million * 28 =11,200 milion [ 11.2 bilion ]

Book value of equity = 7.2 billion

[A] So Market/Book ratio = 11.2 / 7.2 =1.56

Total debt = Long term debt + Note payable = 9 billion + 1.1 billion = 10.1 billion

Now we will find Enterprise Value [ EV ]

EV = Market value of Equity + Debt - Cash and equivalents

= 11.2 billion + 10.1 billion - .11 billion =21.19 billion

EBITDA is given as 1.792

[ B ] So EV/EBITDA ratio = 21.19 / 1.792 =11.82

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