Question

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

Answer 1

(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)