Question

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.

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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