In 2018, Chevelle Company has sales of $39,500, cost of $18,400, and depreciation of $1,900 and...

In 2018, Chevelle Company has sales of $39,500, cost of $18,400, and depreciation of

$1,900 and interest expense of $1,400. Its tax rate is 35%. It has a stock market value

of $250,000 and debt borrowing of $100,000. It has little cash on balance sheet and

pays a dividend of $3,470 in 2018.

a) Construct an income statement;

b) What’s the retained earnings?

c) What’s its EBITDA?

d) What’s its Enterprise Value (EV)?

e) What’s its EV /EBITDA valuation?

Solutions

Expert Solution

a) income statement

	Income statement
	Sales	$39,500
Less:	Cost	$18,400
Less:	Depreciation	$1,900
	Operating profit (EBIT)	$19,200
Less:	Interest expense	$1,400
	Earnings before tax	$17,800
Less:	Tax at 35%	$6,230
	Earnings after tax	$11,570
Less:	Dividend paid	$3,470
	Retained earnings	$8,100

Calculations

b) the retained earnings are $8,100.

c) EBITDA = Sales - cost = $39,500 - $18,400 = $21,100

d) Enterprise Value = Total market value of the stock + Book value of all liabilities – Cash

Amount of cash has not been given in the question.

Enterprise Value = $250,000 + $100,000 - $0 = $350,000

e) its EV /EBITDA valuation = EV/EBITDA = $350,000/$21,100 = 16.6 or 16.6x

jeff jeffy answered 2 hours ago

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