Question

Jaxon’s has total revenue of $418,300, earnings before interest and taxes of $102,600, depreciation of $59,200, and a tax rate of 30 percent. The firm is all-equity financed with 15,000 shares outstanding at a book value of $38.03 a share and a price-to-book ratio of 3.2. What is the firm’s EV/EBITDA ratio if the firm has excess cash of $49,300?

Answer 1

Answer:

EV / EBITDA Ratio = 10.98  

Explanation:

given data

total revenue = $418,300

interest and taxes = $102,600

depreciation = $59,200

tax rate = 30 percent

equity financed = 15,000 shares

book value = $38.03

price-to-book ratio = 3.2

excess cash = $49,300

to find out

firm’s EV/EBITDA ratio

solution

we get EBITDA that will be here as

EBITDA = EBIT + Depreciation     .....................1

put here value

EBITDA = $102,600 + $59,200

EBITDA = $161,800

and

Price Book Ratio is = Market Price per share ÷  Book Value per share     ...........2

put here value

3.20 = Market Price per share ÷ $38.03

so Market Price per share = $121.696

and  

now market Value of Equity will be

Market Value of Equity = Market Price per share × No of shares     ..............3

put here value

Market Value of Equity = $121.696 × 15,000

Market Value of Equity = $1,825,440

and  

Enterprise Value = Market Value of Equity - Excess Cash      .................4

put here value we get

Enterprise Value = $1,825,440 - $49,300

Enterprise Value = $1,776,140

so EV / EBITDA Ratio will be here

EV / EBITDA Ratio = Enterprise Value ÷  EBITDA       .......................5

put here value

EV / EBITDA Ratio = $\frac{1,776,140}{161,800 }$

so

EV / EBITDA Ratio = 10.98