Question

You are trying to estimate the share price for A&T Inc. You know that A&T will have EBITDA of $50million at the end of the year. In addition, you know that A&T Inc. has $10 million in outstanding debt, no excess cash, and 60 million outstanding shares. You have collected the following information on publicly traded comparable firms (see table below). Using the average Enterprise Value to EBITDA ratio of comparable firms, what is the best estimate of A&T's share price? Select one.

Firm	Enterprise Value (in $ millions)	EBITDA1 (in $ millions)
I	$1,800	$167
II	$2,700	$233
III	$960	$88
IV	$3,400	$297
V	$5,050	$480

Answer 1

Firm	EV	EBITDA	EV/EBITDA
I	$1,800	$167	10.8
II	$2,700	$233	11.6
III	$960	$88	10.9
IV	$3,400	$297	11.4
V	$5,505	$480	10.5
Average			11.0

AT&T estimated EBITDA = $50 million, net debt = $10 million, shares outstanding = 60 million

Hence, EV = average EV / EBITDA of peers * estimated EBITDA = 11 * 50 = $552 million

Market cap = EV - net debt = 552 - 10 = $542 million

Price per share = Market cap / share outstanding = 542 / 60 = $9.04