Question

Realistically, valuations are based on multiple ranges. This gives rise to Enterprise Valuation ranges. To derive the Equity Value, Debt must be subtracted from Enterprise Value. To Estimated the Implied Share Price, divide Equity Values by Fully Diluted Shares Outstanding.

Suppose comparable ranges for the EBITDA Multiplier is 6.8 to 7.4; Target EBITDA is $40, target Debt is $90M and there are 20M fully diluted shares outstanding.

1. Compute the range of Enterprise Values.

2. Compute the range of Equity Values

3. Compute the Implies Share Price

Answer 1

1. Range of Enterprise values

Lower value of Enterprise value = EBITDA x lower value of EBITDA multiplier

Lower value of Enterprise value = 40 x 6.8 = 272

Higher value of Enterprise value = EBITDA x higher value of EBITDA multiplier

Higher value of Enterprise value = 40 x 7.4 = 296

Range of enterprise values = 272 to 296

2. Debt = 90

To get Range of equity values we have to subtract debt from  Equity values.

Range of equity values = [272 - 90] to [296 - 90] = 182 to 206

3. Implied share price : 182/20 to 206/20 = 9.1 per share to 10.3 per share