Question

You have the following information about a company: Market to Book Ratio = 3 Debt to...

You have the following information about a company: Market to Book Ratio = 3 Debt to Equity (Book) Ratio = 2, Share Price = $60, Shares outstanding = 200 million, Cash = $800 million. Calculate the Enterprise Value of this company

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Answer #1

Solution:

Enterprise value=Market Capitalisation+Market value of debt-Cash and cash equivalent

Market capitalisation=Share price*No. Of shares outstanding

=$60*200,000,000=$12000,000,000

Book value of equity=Market value of equity/market to book value ratio

=$12000,000,000/3=$4000,000,000

Book value of debt=Book value of equity*debt to equity ratio

=$4000,000,000*2=$8000,000,000

Book value of debt is considered as market value of debt

Enterprise value is =$12000,000,000+$8000,000,000-$800,000,000

=$19200,000,000

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