Question

After researching the competitors of EJH​ Enterprises, you determine that most comparable firms have the following valuation​ ratios: Comp 1 Comp 2 Comp 3 Comp 4 ​EV/EBITDA 12 11 12.5 10 ​P/E 19 18 20 17 EJH Enterprises has EPS of ​$1.80​, EBITDA of ​$290 ​million, ​$30 million in​ cash, ​$40 million in​ debt, and 100 million shares outstanding. What range of prices is consistent with both sets of​ multiples? The range of prices will​ be: Lowest price within both​ ranges, the​ P/E and ​ EV/EBITDA ranges, is ​$ nothing.  ​(Round to two decimal​ places.) Highest price within both​ ranges, the​ P/E and the​ EV/EBITDA ranges, is ​$ nothing. ​(Round to two decimal​ places.)

Answer 1

Multiple Ranges

Lowest Price with P/E ranges = Price with 17.0x = 17.0 * EPS = 17.0 * 1.8 = $30.60

Lowest Price with EV/EBITDA ranges = Price with 10.0x

EV = 10.0 * EBITDA = 10 * $290M = $2,900 M

Equity Value = EV - Net Debt = EV - (Debt - Cash) = 2,900 - (40 - 30) = $2,890 M

Price = Equity Value / Shares outstanding = 2890 /100 = $28.90

Highest Price with P/E ranges = Price with 20.0x = 20.0 * EPS = 20.0 * 1.8 = $36.00

Highest Price with EV/EBITDA ranges = Price with 12.5x

EV = 12.5 * EBITDA = 12.5 * $290M = $3,650 M

Equity Value = EV - Net Debt = EV - (Debt - Cash) = 3,650 - (40 - 30) = $3,615 M

Price = Equity Value / Shares outstanding = 3615 /100 = $36.15