Question

Edelman Engines has $2 billion in total assets of which cash and equivalents total $80 million. Its balance sheet shows $0,4 billion in current liabilities of which the notes payable balance totals $0.9 billion. The firm also has $0.9 billion in long-term debt and $0.7 billion in common equity. It has 700 million shares of common stock outstanding, and its stock price is $22 per share. The firm's EBITDA totals $2.31 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places M/B: EV/EBITDA:

Answer 1

a). Market Price per share= $22

Book Value per share = Book Value of Equity /Shares Outstanding = $700,000,000 / 700,000,000 = $1

Market/Book = 22/1 = 22 times

b). EV = Market Value of equity + Market Value of debt + Market Value of other claims - cash &equivalents

= [700,000,000 * $22] + [$900,000,000 + $900,000,000] + $0 - $400,000,000

= $15,400,000,000 + $1,800,000,000 - $400,000,000

= $16,800,000,000

EV / EBITDA = $16,800,000,000 / $2,310,000,000 = 7.27 times