Summit Beverages Inc.’s estimated EBITDA for the TTM is $345.85 million and the median trailing enterprise value to EBITDA ratio of comparable firms is 7.50. The market value of Summit Beverages’ debt is $923.48 million and it has no outstanding preferred stock and 102.50 million shares of common stock. Estimate the value of common stock using the enterprise value to EBITDA ratio.
Soln : EBITDA for summit's beverages TTM = $345.85 million
Comparable/peer firms EV/EBITDA = 7.50, summit's beverages debt = $ 923.48 million, common stock share = 102.50 million
EV, enterprise value = Market capitalization(M) + preffered shares+ debt - cash
Cash = 0 , preffered shares = 0
Using the TTM EBITDA, we will find out EV of the summit's beverages, EV = 7.50* 345.85 = $2593.875 million
M+0 + 923.48 = 2593.875, M = $ 2593.875- 923.48 = $1670.395
Value of common shares = Market Capitalization/no. of shares = 1670.395/102.50 = $16.30
Option D is the correct answer.
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