Question

You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = $6.75 billion, price/earnings ratio = 11, common shares outstanding = 40 million, and market/book ratio = 2.6. The firm's market value of total debt is $4 billion; the firm has cash and equivalents totaling $210 million; and the firm's EBITDA equals $1 billion.

a.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.

b.What is the firm's EV/EBITDA? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Hi,

Here P/E ratio= 11

book value of equity = $6.75 billion

market/ book ratio = 2.6

hence market value of equity = 6.75*2.6 = $17.55 billion = 17,550 million

total shares outstanding= 40 million

so price of a share = market value of equity/ shares outstanding

= 17550 / 40 = $438.75

firm's EV (Enterprise Value) = market value of equity + debt - cash and equivalents

= 17550 + 4,000 + 210 = $21,760 million

EBITDA = 1,000 million

so EV/EBITDA = 21760/1000 = 21.76 times

Thanks