Question
In: Finance
You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = $6.75 billion, price/earnings ratio = 18.5, common shares outstanding = 220 million, and market/book ratio = 2
You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = $6.75 billion, price/earnings ratio = 18.5, common shares outstanding = 220 million, and market/book ratio = 2. The firm's market value of total debt is $4 billion, the firm has cash and equivalents totaling $210 million, and the firm's EBITDA equals $3 billion. What is the price of a share of the company's common stock? Do not round intermediate calculations. Round your answer to the nearest cent.
$
What is the firm's EV/EBITDA? Do not round intermediate calculations. Round your answer to two decimal places.
Solutions
Expert Solution
a). Book Value of equity = $6.75 billion
Market-to-Book Ratio = 2
Market-to-Book Ratio = Market Value of equity/Book Value of equity
2 = Market Value of equity/$6.75 billion
Market Value of equity = $13.5 billion
Price per share of Stock = Market Value of equity/No of shares outstanding
Price per share of Stock = $13.5 billion/0.22 billion
Price per share of Stock = $61.36 per share
b). Enterprise Value = Market Value of equity + Market Value of Debt - cash 7 Cash equivalents
Enterprise Value = $13.5 billion + $4 billion - $0.21 billion
Enterprise Value = $17.29 billion
- Firm's EV/EBITDA = Enterprise Value(EV)/EBITDA
= $17.29 billion/$3 billion
Firm's EV/EBITDA = 5.76 times
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