Question

Calculate a market value of equity for the subject company given the following information: Subject company...

  1. Calculate a market value of equity for the subject company given the following information:

    Subject company sales = $28,000,000

    Subject company net income = $4,500,000

    Subject company total liabilities = $13,000,000

    Subject company interest-bearing debt = $9,000,000

    Median guideline company market value of invested capital = $60,000,000

    Median guideline company sales = $80,000,000

    a.

    $28,333,000
    b.

    $15,000,000
    c.

    $12,000,000
    d.

    $21,000,000
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Homework Answers

Answer #1

Answer:

Correct answer is:

c. $12,000,000

Explanation:

Given:

Median guideline company market value of invested capital = $60,000,000

Median guideline company sales = $80,000,000

Revenue Multiple for invested value = Market value of invested capital / Revenue = $60000000 / 80000000 = 0.75

Subject company sales = $28,000,000

Subject company market value of invested capital = 28000000 * 0.75 = $21,000,000

Subject company market value of equity = market value of invested capital - Subject company interest-bearing debt

= 21000000 - 9000000

= $12,000,000

Market value of equity = $12,000,000

Correct option is option C and other options A, B and D are incorrect.

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