Question

# 1) On 1/1/2019 Company A trades at \$32 and has a next twelve months P/E of...

1) On 1/1/2019 Company A trades at \$32 and has a next twelve months P/E of 8.0x, what does the market estimate the company will earn per share in 2019?

a) 0.25

b)2.67

c) 3.00

d)4.00

e)8.00

2) Company X has an enterprise value of \$500, debt of \$125, and cash of \$60, what is its equity value?

a) \$375

b) \$435

c) 440

d) \$500

e) \$650

A company has 100 shares outstanding, at a share price of \$10 each. It also has 10 options outstanding at an exercise price of \$5 each. What is its fully diluted equity value?

a) 100

b)900

c)1000

d)1050

e)1100

(1) Current Price = \$ 32 and Next 12 months PE = 8

Therefore, Earnings at the end of 2019 (or earnings over the year 2019) = 32 / PE = 32 / 8 = \$ 4

Hence, the correct option is (d)

(2) Enterprise Value (EV) = \$500, Debt = \$ 125 and Cash = \$ 60

Equity Value = EV - Debt + Cash = 500 - 125 + 60 = \$ 435

hence, the correct option is (b)

(3) Number of Shares Outstanding = 100 and Price per Share = \$ 10

Option Strike Price = \$ 5

Payoff per Option = 10 - 5 = \$ 5 and number of options = 10

Therefore, Fully Diluted Equity value =100 x 10 + 5 x 10 = \$ 1050

Hence, the correct option is (d)

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