Question

# You are given the following information: Stockholders' equity as reported on the firm’s balance sheet =...

You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = \$5.5 billion, price/earnings ratio = 20, common shares outstanding = 200 million, and market/book ratio = 1.6. The firm's market value of total debt is \$6 billion, the firm has cash and equivalents totaling \$250 million, and the firm's EBITDA equals \$2 billion. What is the price of a share of the company's common stock? Do not round intermediate calculations. Round your answer to the nearest cent. \$ What is the firm's EV/EBITDA? Do not round intermediate calculations. Round your answer to two decimal places.

#### Homework Answers

Answer #1

Book Value of equity = \$5.5 billion

Market-to-Book Value ratio = Market Value of equity/Book Value of equity

1.6 = Market Value of equity/\$5.5 billion

Market Value of equity = \$8.8 billion

No of shares outstanding = 0.20 billion or 200 million

a). Price of Common Equity = Market Value of equity/No of shares outstanding

= \$8.8 billion/0.2 billion

= \$44 per share

So, the price of a share of the company's common stock is \$44

b). Enterprise Value = Market Value of equity + Market Value of Debt - Cash & Cash Equivalents

= \$8.8 billion + \$6 billion - \$0.25 billion

Enterprise Value(EV) = \$14.55 billion

Firm's EV/EBITDA = \$14.55 billion/\$2 billion

= 7..28 times

So, the firm's EV/EBITDA is 7.28 times

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