Question

• eBook

Problem Walk-Through

You are given the following information: Stockholders' equity as reported on the firm’s balance sheet = $6.75 billion, price/earnings ratio = 10.5, common shares outstanding = 140 million, and market/book ratio = 2.2. The firm's market value of total debt is $4 billion, the firm has cash and equivalents totaling $230 million, and the firm's EBITDA equals $1 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.

Answer 1

Market to book value ratio is calculated using the below ratio:

= Market value of shares/ Book value of equity

2.2= Market value of shares/ $6.75 billion

Market value of shares= 2.2*$6.75 billion

                                    = $14.85 billion

Price per share= $14.85 billion/ 140 million

                         = $106.07     $106

EV/EBITDA ratio is calculated using the below formula:

Enterprise value/ EBITDA

Enterprise value is calculated using the below formula:

Enterprise value= Market capitalization + Total debt – Cash and cash equivalents

                                = $140 million*106 + $4 billion – $230 million

                                = $140.84 billion + $4 billion – $230 million

                           = $144.61 billion

EV/EBITDA= $144.61 billion/ $1 billion

                   = 144.61.

In case of any query, kindly comment on the solution.