Edelman Engines has $14 billion in total assets — of which cash and equivalents total $100...

Edelman Engines has $14 billion in total assets — of which cash and equivalents total $100 million. Its balance sheet shows $2.1 billion in current liabilities — of which the notes payable balance totals $0.91 billion. The firm also has $7.7 billion in long-term debt and $4.2 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price is $26 per share. The firm's EBITDA totals $1.014 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations.

Expert Solution

Ans:-(a) In this question, we have to find two things Edelman's Market Value/Book Value and its EV/EBITDA ratios.

As per this question, it is given that Edelman Engines has 300 million shares of common stock outstanding and its stock price is $26 per share.

Therefore the market value of Edelman Engines will be given by (stock price* No of shares)

= $26* 300 = $7800 million.=7.8 billion.

The Book Value of Common equity of Edelman Engines is given $4.2 billion.

Now the Market to Book Value of Edelman Engines will be Market Value/Book Value =7.8/4.2 = 1.86.(approx).

Ans:- (b) Now the total debt of Edelman Engines will be (Long term debt + Notes payable)

= $7.7 billion + $0.91 billion = $8.61 billion is the total debt.

Now the Value of the Enterprise i.e (EV) of Edelman Engines will be (Market Value - Cash + Debt)

= $7.8 billion - $0.1 million + $8.61

= $16.31 billions

Note:- Here cash is nothing but cash and cash equivalents which is $100 million = $0.1 billion as per this question.

Edelman Engines EBITDA is $1.014 billion. Therefore the EV/EBITDA ratio will be 16.31/1.014 = $16.09.(approx).

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